Wharton’s Peter Cappelli talks about what we’re getting wrong about the Great Resignation and how the pandemic has rewired worker preferences.

As the COVID-19 pandemic continues, there’s a lot of confusing information about what it’s doing to the job market. Companies are still trying to figure out work-from-home policies, some industries are contracting, others are scrambling to fill positions, and everyone is talking about the Great Resignation.

Wharton management professor Peter Cappelli separates fact from fiction in a new report titled “Let’s Stop Guessing: Here’s What’s Truly Changing About Work.” Cappelli partnered with the employment website Indeed to analyze survey data that it collected on the attitudes and behaviors of American workers, and he found one thing to be clear: The pandemic has rewired worker preferences, so now is the time for employers to rethink what they are offering.

Cappelli, who is director of the School’s Center for Human Resources and the author of a new book titled The Future of the Office, spoke about the report with Knowledge at Wharton. Listen to the interview at the top of this page or keep reading for an edited transcript of the conversation.

Knowledge at Wharton: Let’s get right to that big question: What is truly changing about work?

Peter Cappelli: I think the big thing that has changed is that we have a ton of jobs open all of a sudden. The reason for that is employers waited until the last minute to hire or waited until demand was already back. They didn’t anticipate that everybody else was going to do the same thing, and that employees who were laid off were not just sitting by the phone, waiting for them to call. We have this temporary imbalance of supply and demand here, and that is one of the things that’s causing employees to be maybe a little pickier than they might in another context. It’s also causing more turnover than it might in another context.

That, in combination with the fact that we’ve had this work-from-home policy for about a third of the workers during the pandemic, makes a lot of people wonder, can we keep doing this? The employers aren’t saying. I think at the moment we seem to have a little bit of a logjam. Despite what you hear about the Great Resignation, the big story right now is there are not so many people looking for new jobs and willing to snap up some of these vacancies. I think the reason is they’re really waiting to see what employers are going to do.

Knowledge at Wharton: The government reported in August that 4.4 million Americans quit their jobs, which was a record number since record-keeping began. You’re saying this isn’t necessarily reflective of a fundamental change in the workforce. Can you explain that?

Cappelli: First, they don’t tell you that records only began 20 years ago, and most of that period has been dominated by recession. Jobs become open when the economy is booming, and the closest we’ve had to anything like a real boom was in 2018–2019, especially just before COVID. The job market was getting pretty tight.

“The idea that people are quitting all over the place is not true.”

If you look at the data on turnover by month, and you look at July 2021, during the summer when all this talk about the Great Resignation started, the turnover rate was 2.7% per month. If you look at July 2019, it was 2.4%. We went from 2.4% to 2.7%. At the moment, it’s up to 3%. It’s not a huge jump compared to where it was in 2019.

One of the things we don’t recognize is people are quitting jobs all the time. In the U.S., with a labor force of 160 million people, we fill about 70 million jobs every year. The quit rate is about 30% or so of people who quit their jobs every year. That doesn’t count retirements. It doesn’t count layoffs or dismissals. It sounds like a huge thing because we don’t realize what is normal. Normal is a whole lot higher than you would have thought. It’s a lot of people quitting, for sure. But given how many jobs are open, it’s not that many.

Knowledge at Wharton: You also mention in the report that we’re seeing high quit rates in very specific industries, such as the restaurant and service industry.

Cappelli: Most of this turnover, and most of the concern with hiring, is for hourly employees and frontline employees. They’re kind of interchangeable, given the jobs are relatively unskilled. Between warehouse workers at Amazon and Walmart employees and frontline restaurant workers, they kind of hire back and forth from each other. The big jump has been in restaurant work and the broadly defined category of entertainment, which includes movie theaters that went from zero to sort-of-open-again in the spring of this year. So, employment there went from zero to a lot of people hired all at once.

But look at construction, where we’re usually talking about shortages. The quit rate there hasn’t changed. Some of the others, like finance, traditional office work, insurance, haven’t changed either. The idea that people are quitting all over the place is not true. The idea that people are quitting and sitting on their hands, which is what is implied in a lot of these stories — there’s no evidence that’s the case. Historically, everybody who quits takes another job.

Knowledge at Wharton: You have recommendations for what employers can do to make sure that they’re attracting and retaining a quality, capable workforce. First, you’re telling employers to think more broadly about recruitment. What does that mean?

Cappelli: In the period after the Great Recession, when the labor market was really bad for employees but great for employers, employers got really picky about who they were willing to hire. You started to see job requirements go up for the same work. For example, legal secretary, which used to be a job for high school graduates, suddenly became a job that required a college degree even though the work hadn’t changed at all. Why? Well, because you could become pickier. Most all these jobs could be done with candidates who have fewer attributes than we usually ask for. Is it really worth keeping your jobs open longer? You’re losing money when you’re doing that. You’re typically foregoing some kind of opportunity. It’s costly to fill these jobs, and stretching the search process out costs you money, too. Couldn’t we think a little more broadly about who you could hire for these jobs? Maybe you should take a look at people that you may have passed over before because you had tons of candidates. We’re not great at predicting who is going to be a good worker. It’s not like you know that because somebody has a college degree, they’re going to be better than somebody with a high school degree for this particular job, which probably doesn’t require college skills in the first place.

“Surprisingly few people actually want to be permanently remote, but there are people for whom this would be a big deal.”

The other part of that, and one of the myths, is this idea that wages are way out of control. That’s not true. I’m sure there are places where wages are jumping quickly, but wages are rising now less than the rate of inflation. Real wages are falling. The idea that we’ve offered these terrific wages and nobody is coming — unfortunately, that’s not true.

Knowledge at Wharton: You’re telling employers to be prepared to pay more for talent, but also to think beyond compensation. You don’t mean Foosball tables and fancy offerings in the breakroom, right?

Cappelli: Nothing wrong with pizza in break rooms, of course. There have been surveys of employees, particularly for people who are unemployed, asking those folks, what’s keeping you from searching more aggressively? The first is still fear of COVID. The second is a belief that job opportunities are going to get better. They’re waiting to see if things get better. On the COVID front, there are things you can do to persuade your candidates that they’re going to be safe if they come work for you. That’s an important thing to think about.

One thing that is still hanging out there is work from home. That is, to what extent will we have some flexibility with being able to work from home? One of the other issues that’s holding up people coming back into the labor market is child care, because child care places haven’t all reopened at the same rate. A lot of people have taken on child care obligations because their job wasn’t going to pay enough or the commute was too difficult if they were going back to work. Can we do something about work-from-home to make it easier for people to come into the workforce?

Not everybody wants to work from home. Surprisingly few people actually want to be permanently remote, but there are people for whom this would be a big deal. I think too many employers are just waiting to see what everybody else is doing. Maybe you’re paying a price for doing that. You just ran the experiment for a year of office work doing it, and if it looked like it was OK, this is an opportunity to use that as an advantage in hiring.

Knowledge at Wharton: Managers have learned how to be more flexible since working from home. They’ve learned how not to micromanage and look over the shoulder of their employees, giving them some autonomy. You recommend that companies continue to do that and teach their managers to lead with trust and support. Can you talk about that?

“When we say ‘place some emphasis on mental health,’ it doesn’t mean more wellness programs.”

Cappelli: There are several surveys that show employees report they like their supervisor better, or their relationship with them improved during the pandemic. If you’re really cynical, you would say, “I didn’t see my boss during the pandemic, so I like her better.” I don’t think that’s what was going on. I think some of it was this we’re-all-in-it-together thing. But some of it was that smarter employers made their supervisors check in with their direct reports at least every week or so and talk about work. In the office, we may see our subordinates a lot, but how often do we actually have a conversation about what they’re doing and how it’s going?

To think that your boss is paying attention to you has a huge effect on people. It heads off problems that you might be having so that you can check in with each other, they can ask questions, and you can offer some information. That goes a really long way toward improving people’s work life, improving retention. It’s not that hard to do. We just have to have the will to make it happen.

Knowledge at Wharton: Another recommendation is to prioritize mental health. What does that look like in the workplace?

Cappelli: There seems to be an awful lot more interest in this now. Maybe it shouldn’t have surprised me because so many employees were so stressed out working at home. Their families were there, their kids weren’t in school, and they’re trying to do their job. It was better than if they didn’t have a job, and it was better than if they had to commute. Nevertheless, they were all quite stressed out.

I think the reason it became a bigger deal was because of these conversations that were required with their managers, where the managers’ understanding of what was going on started to percolate up. When we say “place some emphasis on mental health,” it doesn’t mean more wellness programs, where we give you some support as to how to deal with the problems that, frankly, we’re creating for you by putting so much stress on you and so much work and not enough support. It is trying to think through what we could do to reduce the stress in the first place. A lot of that was simply supervisors being more understanding of what’s going on.

I think there was a lot more forgiveness of people having workplace problems during the pandemic because there was awareness from everybody about how much was beyond your control. Your boss understands that you just can’t get this thing done today because of something going on with your kids. Before the pandemic, they weren’t understanding that. Maybe you didn’t feel comfortable raising it with them. Employees felt a lot more top-down stress, and that’s something we can do a lot more about. It’s not that hard to do, but there has to be a willingness to do it.

“I think there’s an opportunity here for employers to do things that might make their employees happy.”

Knowledge at Wharton: How does this moment in history resolve? Are companies going to be stronger in the next year? Are employees going to be happier?

Cappelli: There has not been a change this big in the workplace in my lifetime. If you had told us in March 2020 that offices would be closed almost for a year and a half, I would’ve thought we would be living in caves and burning furniture for heat. It’s amazing that we have survived this far. I think the question going forward is what will employers do? They hold all the marbles in this game, and they can do things to accommodate employees’ interest in work-from-home, or not.

Part of the complication for employers is they haven’t quite figured out how it will help them. They know how it will help employees. I think too many employers are sitting on their hands, waiting to see what everybody else is doing. The longer this drags on without actual decisions, the more likely it is that we will return to the old ways of operating. There’s some considerable evidence that that’s already going on. A third of office workers are already back to work.

But I think there are opportunities for employers to differentiate themselves. There are already enough employers who have said that they’re going to do things differently going forward, they’re going to have some hybrid model. There will be more variability than there’s ever been before and more policies on work-from-home than ever before. There will be a lot of employers that will lurch back to what they were doing before, but I think there will be enough that there’s a critical mass, where if an employer decides it makes sense for them to have a hybrid, they won’t feel like an idiot or a loner for being the one who’s standing out from what their peers are doing.

I think there’s an opportunity here for employers to do things that might make their employees happy, might make them stay with you longer, and might be better for the organization. There’s a window for doing something about it that’ll probably go on for a little while.