'Quiet quitting' trend may lead to layoffs, and complicate the Fed's inflation fight

Shrinkflation has entered the labor market.

Just like people are paying more for smaller products at the store, companies are paying workers more for less work. Some Tik Tok users have openly admitted that they’ve continued to collect wages for less work and have termed it “quiet quitting.” They say they’re doing this because they’re simply burned out.

While quiet quitting may make workers feel better in the short run, productivity drops could have far-reaching ramifications for the economy. For one, it makes the Federal Reserve’s fight against soaring inflation harder. Second, it’s likely to lead to layoffs because companies won’t be able to afford to keep paying more for less forever as profits come under pressure.

Whether workers realize it or not, many companies are already on the path of cutting out as many humans as possible from their operations.

What is quiet quitting?: Employees suffering pandemic burnout say they've just stopped working as hard

How widespread is quiet quitting?

Instead of quitting, 21% of workers said they only do the minimum and 5% do even less than what they’re paid to do, a ResumeBuilder.com survey of 1,000 Americans taken Aug. 17 showed. One-third of them more than halved the hours they work, it said.

Even though 52% of those working less say their employer has ‘definitely’ or ‘probably’ noticed, they don’t care. “The risk of getting fired isn’t motivating them to change their behavior,” Stacie Haller, career strategist and coach, said.

Government data also show productivity declines. Productivity fell at a 4.6% annualized rate last quarter, Bureau of Labor Statistics data show. That comes on the heels of the first quarter's 7.4% plunge, the sharpest decline in 74 years.

Over the past four quarters, productivity growth was down at an annual rate of 0.4% compared with the pre-pandemic average increase of 1.3%, Wells Fargo analysts also noted.

How does quiet quitting boost inflation?

“Employers must pay more money for less productivity. That feeds wage inflation,” Matt Matigian, chief executive of Blue World Asset Managers, said. “To survive, a company has no choice but to pass on those costs to the consumer, and that feeds consumer prices. And ’round and ’round we go!”

And that’s how the “wage-price spiral” works.

Eventually, labor costs will slow again as workers are forced to accept lower wage growth to compensate for their slower productivity growth.

“But during the adjustment period, which can last for a considerable period, there is upward pressure on inflation,” Janet Yellen, now Treasury Secretary, wrote in 2005 for the San Francisco Federal Reserve.

The “considerable period” it might take to bring wage growth back in line with productivity means that inflation is likely to keep feeling upward pressure for a while, making the Fed’s attempts to rein in 40-year high inflation more difficult.

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Are layoffs coming?

Possibly.

“With labor being the biggest expense of many businesses, if labor costs continue to soar amid falling productivity, businesses will be forced to shed labor to protect the bottom line,” Sarah House, Wells Fargo economist, said. “They may also increasingly seek to invest in labor-saving technology to boost productivity.”

Already, companies are automating at a record pace. The number of robots sold in 2021 rose 28% over 2020 and 14% ahead of the previous high in 2017 as more industries look to increase productivity and alleviate labor shortages, according to Association for Advancing Automation.

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“A large number of workers will become redundant with the next significant economic decline,” John Norris, Oakworth Capital Bank chief economist, said.

“This doesn’t require a crystal ball. It just requires a desire to turn a profit and a willingness to read history. However, unlike in history, the future will bring us driverless delivery services," he said. "Machines will make our hamburgers with little to no human input. Cashiers will become a thing of the past. The possibilities are endless, and companies are already hard at work.”

Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.

This article originally appeared on USA TODAY: Quiet quitting could lead to layoffs, complicate inflation fight