Job growth has sharply weakened over the past several months, but it’s not — mostly — due to a lack of hiring. Instead, what we’re seeing is an unprecedented amount of churn in the job market. This is a painful experience for employers but it also sets the stage for a reversal of trends that have dominated the U.S. labor market since the dot-com crash in 2000.

In August, the latest month for which we have data, employers hired 6.3 million workers; that’s down only slightly from the 6.4 million they hired in the same month one year ago, when payrolls soared by 1.6 million. The difference this year is in the number of “quits.”

A record number of people, 4.3 million, quit their jobs this past August, compared with just under 3 million the year before. It’s tempting to blame the increase on the delta variant. Cases rose rapidly in late July and peaked in early September.

Yet quits began rising in January and — with the exception of a brief pullback in May — have seen an unprecedented explosion all year long. It’s worth taking a minute to note how unusual the surge has been. Quits typically rise as the job market tightens, but the scale of the increase in 2021 is far beyond anything on record.

Over the course of 2018, job openings grew, at a then record pace, from 6.6 million in January to a peak of 7.6 million that November. Over the same period, quits rose from just over 3 million to 3.4 million. From January 2021 until August, openings ballooned from 7.1 million to 10.4 million, while quits increased from 3.3 to 4.3 million. Both run-ups are roughly three times the 2018 rise and in fewer months.

At the heart of this phenomenon is a self-reinforcing cycle that has the potential to remake the labor market. As employers become more desperate to expand their workforce, job openings proliferate and workers become more confident in their options.

This not only makes them more likely to quit their old job but raises what economists refer to as their reservation wage — the minimum they’ll accept — for taking a new job. In the modern job market, however, reservation wage is best thought of as not simply minimum pay, but a minimum package of pay, working conditions and opportunities for advancement.

As workers become choosier along all of these dimensions, the potential applicant pool for employers shrinks. This makes them even more desperate, so they cast a wider net, posting more openings with fewer qualifications and thereby further pushing up reservation wages.

The cycle will be broken when employers turn their focus away from hiring more workers and toward increasing the productivity of their existing workforce. This is essentially the opposite dynamic from what the U.S. economy experienced after the 2001 recession.

In the wake of the dot-com bust, several interrelated factors — including a sharp slowdown in technology investment in equipment and machinery, rapid expansion in trade with China, the clustering of job opportunities in coastal cities, and overly tight monetary policy — created a persistent excess supply of unskilled workers.

This created an environment where employers could be increasingly stingy about who they hired, reduce investment in employee training, forgo the adoption of labor-saving technology and hold down workers’ wages. From 2000 to 2010, labor’s share of business expenditures declined from 68% to 61%. Productivity growth declined from roughly 3%-4% before the dot-com crash to less than 1% after 2010.

The signs of a reversal began even before the pandemic hit. Wage growth began to rise, particularly for lower-skilled workers, in 2018-2019. Productivity began to drift up closer to 2%. The direct and indirect effects of Covid — which pulled millions of workers out of the workforce and created major supply bottlenecks — make national-level data more difficult to interpret.

Nonetheless, there is every indication that these trends have accelerated. GDP in the second quarter of this year was higher than in the last quarter of 2019 despite the fact that 5.5 million fewer people were employed.

Likewise, total weekly wages paid to non-supervisory employees have hit new records even though millions of workers have yet to return to work. This is precisely what we would expect given the churn in the labor market, and there is every reason to think it will continue.

So while the competition for workers is fueling intense churn in the labor market and allowing them to hold out for ever higher wages, it’s also fueling the type of creative destruction the economy needs to break out of the low productivity trap that it’s been in since 2000. This should provide a solid foundation for a high-wage economy in the years to come.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Karl W. Smith is a Bloomberg Opinion columnist. He was formerly vice president for federal policy at the Tax Foundation and assistant professor of economics at the University of North Carolina. He is also co-founder of the economics blog Modeled Behavior.

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