The Economics of Quiet Quitting: Labor Supply Meets Workplace Incentives

The labor market is rarely considered a fun place to be.  Job applicants frequently complain that employers have unrealistic expectations and typically ghost (cease contact without explanation) applicants, even after multiple communications.  Employers, by contract, complain that applicants often spam apply to hundreds of jobs online, frequently have inaccurate or misleading resumes, and are prone to ghosting behavior themselves.  However, despite perennial frustrations on both the supply side (workers) and demand side (employers) of the labor market, the unemployment rate in the United States remains largely unchanged from six months ago.

A New Term: Quiet Quitting

Similar to ghosting, in which a person ceases communication without explanation (i.e., evaporating like a ghost), quiet quitting is a hot buzzword today.  Quiet quitting refers to employees who mentally detach from their jobs.  They are not quitting, at least immediately, but rather doing the “bare minimum” and continuing to collect a paycheck.  It is considered controversial because it violates the social norms around work ethic.  In some capitalist nations, such as the United States, hustle culture is often praised and employees are expected to show great effort on the job, including through extra hours worked.

Frustrations With Employers

Quiet quitting occurs when a worker rejects contemporary norms around “going the extra mile” at work.  Some observers claim that this is happening on a widespread scale with Millennial and Gen Z workers.  They feel dissatisfied with their jobs due to many factors, mostly perceived low pay and weak benefits, but also lack of opportunities for growth and promotion and little job security.  Compared to previous generations, Gen Z workers are more likely to feel that pathways to advancement are blocked, with young workers being hindered by credentialism that requires the expensive and time-consuming completion of formal credentials.  Previous generations were more able to advance on skill, talent, and demonstrated effort.

Economics of Quiet Quitting

Principal-Agent Problem

A perpetual struggle between labor and management has always existed, thanks to the principal-agent problem.  In economics, this problem occurs when the interests of different parties in accomplishing a task are not aligned, and may even be counter to each other.  For example, employers want to receive the most production for the least cost.  Workers, however, want to be paid generously and not be overworked.  This leads to natural tension in many workplaces.

While this tension has long existed, some say it has gotten worse in recent generations due to sociocultural shifts.  The conservative resurgence of the late 1970s and early 1980s arguably brought about a significant increase in income inequality that helped the rich get richer while reducing support and services for the poor.  In the workplace, the conservative resurgence could be said to reduce employers’ generosity toward workers, with increased incentives to trim benefits and cut raises to maximize efficiency (and profits).

Marginal Benefit vs Marginal Cost of Additional Work

So, why are young workers “quiet quitting” and only doing the bare minimum?  Compared to Baby Boomer and Gen X workers, Millennial and Gen Z workers are more likely to believe that the marginal costs of putting in the extra effort (or extra hour) or labor is not worth the marginal benefit received.  Some of this is objective: fewer workers get overtime pay, which is required to be “time-and-a-half” (1.5 times the worker’s regular pay rate) or greater, today compared to decades ago.  There is also the perception among younger workers that putting forth the extra effort no longer leads to promotions…because Baby Boomer and Gen X managers won’t retire.

Thus, for younger workers, the marginal benefits of “going the extra mile” have fallen below the marginal cost.  Rationally, these workers will no longer perform the extra work, as it taxes their physical and mental energy without providing sufficient benefit.  The opportunity cost of spending extra hours on a job that provides few benefits for such work is too high; that time could be used to invest in new skills, seeking utility (satisfaction) through leisure or rest, or searching for a better job.

Decreasing Demand for Labor due to Substitutes

Another reason workers, especially young workers, are mentally checking out on the job is the rapid proliferation of substitute labor in the form of AI.  The rise of artificial intelligence software, which can deliver human-like responses in real time, has made many entry-level workers feel that their employment is tenuous at best.  Fear and stress are reportedly rising among Gen Z white collar workers, who are likely the first to be replaced by AI.  This has added to the imbalance of marginal benefit (MB) and marginal cost (MC) from performing extra labor at work.  If you could be replaced at any moment by AI, why waste your time performing tasks that may be automated anyway?  The situation can seem hopeless.

Asymmetrical Information Leads to Hopelessness

So, why are dissatisfied workers remaining on the job instead of actually quitting?  One economic rationale could be a high degree of asymmetrical information that makes job applicants feel overwhelmed.  Thanks to the Internet, job applicants can see hundreds, if not thousands, of job openings.  But, when they rarely hear back from prospective employers, these applicants begin to feel that the game is rigged.  Some reports say that up to one-third of all job postings are “fake”, with companies posting nonexistent jobs simply to keep their name at the top of applicants’ minds or develop “talent pipelines” by getting information about job-seekers.  

Simultaneously, many job-seekers may be fake as well, with scammers or online bots creating fake resumes and applications to try to seek information about companies and their hiring practices.  Or, the job-seekers may be real, but ghost the employer partway through the hiring or job onboarding process, leaving the employer in the lurch.  This can lead to both job-posters and job-seekers becoming cynical about the hiring process.  Posters continue to post and applicants continue to apply, but neither side wants to invest much effort into their role.  As a result, workers find it easier to remain in a dissatisfying job than to brave the modern hiring market, where chances are slim that a good job will be found.