This was well written and well considered, but needs some clarification. A large portion of the people who quit actually left the labor force. They are not unemployed. And they are not looking for better jobs. They are boomers getting ready to retire, who looked at their situation and the risk and said "Fuck it, I'm out of here". The labor force has been declining for a couple of decades, Covid simply sped up the process.

In addition, you say "Despite high unemployment rates caused, as a result..." I'm not sure, but you seem to be saying that these people who quit their jobs are unemployed. Technically they do not fit the UI definition of unemployed, they could not receive UI under normal circumstances. Which is why, despite people quitting their jobs, the unemployment rate is actually very low by historical standards. True, the supplementation to the UI system undoubtedly encouraged some to quit, if they could fake being laid off, and the additional weeks of access provided by the US Congress undoubtedly encouraged some to stay out longer.

But these people are not working, and are still in the labor force wanting to work. How do we define them? They are, as we define in economics, the voluntary unemployed. Not eligible for UI, but looking for a better job. This is a positive in economics. Voluntary unemployment allows people to find better matches between their skills and motivations and what is needed by employers. It leads to increased efficiency in the economy. Subsidizing it to a point is a good thing.

I believe you are right that the system will balance out eventually, at a lower labor force participation rate, but it will find equilibrium. Despite all the recent articles attacking capitalism as an evil force, it does tend to find equilibrium.