WEBVTT - Why Job Openings Are Surging, Even With So Many People Out of Work 0:00:11.039 --> 0:00:14.520 Hello, and welcome to another episode of the Odd Thoughts Podcast. 0:00:14.600 --> 0:00:18.680 I'm Tracy Allaway and I'm Joe. Wasn't all so, Joe. 0:00:18.960 --> 0:00:22.360 I know we've been spending a lot of time on 0:00:22.440 --> 0:00:26.160 the question of inflation and whether or not it's transitory, 0:00:26.160 --> 0:00:29.200 but I feel like a lot of that discourse is 0:00:29.240 --> 0:00:34.360 sort of happening at the expense of a greater focus 0:00:34.440 --> 0:00:36.280 on the labor market. And I know that sounds like 0:00:36.280 --> 0:00:38.400 a weird thing to say, but if you think that 0:00:39.000 --> 0:00:40.760 what the FED is saying right now is that they're 0:00:40.800 --> 0:00:43.880 going to keep rates very, very low until the labor 0:00:43.960 --> 0:00:48.960 market fully recovers, or recovers even more than really we 0:00:49.000 --> 0:00:51.680 should be digging into the labor market and what full 0:00:51.760 --> 0:00:55.480 employment actually looks like, right, and that is I mean, 0:00:55.520 --> 0:00:58.280 I think there's two questions, or there's a million questions, 0:00:58.320 --> 0:01:01.480 but a as you say, what does quote full employment 0:01:01.720 --> 0:01:05.920 unquote our maximum employment which the FED is established as 0:01:05.920 --> 0:01:08.120 a precondition for rates liftoff, what does that look like? 0:01:08.280 --> 0:01:11.959 That's one thing? And then two, why have we not 0:01:12.040 --> 0:01:14.520 seen faster job market good growth? And that seems like 0:01:14.560 --> 0:01:16.800 a funny question to ask because the labor market growth 0:01:16.800 --> 0:01:21.760 has been incredibly fast since last year. Nonetheless, we do 0:01:21.800 --> 0:01:24.240 seem to be in this weird mismatch where there's lots 0:01:24.240 --> 0:01:27.600 of job openings and lots of people who are not employed, 0:01:28.200 --> 0:01:31.800 and why haven't they Well, what are the reasons that 0:01:32.200 --> 0:01:34.240 people who left the labor four US a year ago 0:01:34.680 --> 0:01:38.520 haven't come back yet? Right? This is the mystery of 0:01:38.600 --> 0:01:41.080 the labor market at the moment. So, on the one hand, 0:01:41.400 --> 0:01:45.360 unemployment is higher than it was before the pandemic. I 0:01:45.400 --> 0:01:48.520 think we're still something like four million jobs short of 0:01:48.560 --> 0:01:52.440 where we were back in February. And if you look at, 0:01:52.480 --> 0:01:54.840 you know, the line of where we would have been 0:01:54.920 --> 0:01:57.720 had the pandemic never actually happened, I think we're about 0:01:57.760 --> 0:02:01.160 seven million jobs short. And Yeah, at the same time, 0:02:01.720 --> 0:02:03.760 you have a lot of companies, and you know, we've 0:02:03.760 --> 0:02:05.800 spoken to at least one of them on the show 0:02:06.200 --> 0:02:09.079 talking about the idea of a labor shortage, that they 0:02:09.120 --> 0:02:11.760 can't get the right workers in the jobs that they 0:02:11.800 --> 0:02:15.760 have open at the moment. And it turns out there's 0:02:15.800 --> 0:02:19.480 really a perfect economic principle to capture this sort of 0:02:19.639 --> 0:02:23.800 tension between job openings and the unemployment rate, and that 0:02:23.960 --> 0:02:27.760 is something called the beverage curve. Yeah, you had a 0:02:27.800 --> 0:02:30.960 great post on this recently. Thank you. Um So, the 0:02:31.000 --> 0:02:34.880 beverage curve is basically the relationship. That's all I wanted 0:02:34.919 --> 0:02:36.959 you to say, Joe, Yeah, I just I just wanted 0:02:36.960 --> 0:02:40.920 to kick it back to you. Thanks. It's the relationship 0:02:41.000 --> 0:02:44.120 between the unemployment rate and the job opening rate. And 0:02:44.360 --> 0:02:46.840 you know, normally, if you look at the beverage curve 0:02:47.160 --> 0:02:51.440 in a usual business cycle, it would be expected to 0:02:51.480 --> 0:02:55.160 move in a sort of counter clockwise loop. So as 0:02:55.160 --> 0:02:59.960 the unemployment rate initially jumps, you would expect the rate 0:03:00.080 --> 0:03:02.839 of job openings to stay very small and then sort 0:03:02.880 --> 0:03:05.840 of gradually recover and start moving to the left as 0:03:05.880 --> 0:03:09.440 the economy healed. Uh, spoiler alert. That is not what 0:03:09.520 --> 0:03:13.360 has happened in this particular business cycle. Instead, we've seen 0:03:13.600 --> 0:03:15.959 something that is normally a curve. You know, the clue 0:03:16.040 --> 0:03:18.680 is in the name, the beverage curve. It's basically morphed 0:03:18.720 --> 0:03:23.560 into an up and down line, meaning that unemployment basically 0:03:23.639 --> 0:03:26.320 isn't moving even as the number of job openings is 0:03:26.360 --> 0:03:30.480 going higher and higher and higher. So something really appears 0:03:30.520 --> 0:03:33.120 to have changed in the labor market here. And I 0:03:33.120 --> 0:03:35.800 am pleased to say we have the perfect person to 0:03:35.960 --> 0:03:38.400 discuss all of this he's actually the author of a 0:03:38.440 --> 0:03:42.120 recent bulletin on the beverage curve on this exact topic, 0:03:42.200 --> 0:03:44.920 we're going to be speaking with Thomas Lubeck. He's a 0:03:45.000 --> 0:03:49.080 senior advisor in the research department at the Richmond fed So, Tom, 0:03:49.120 --> 0:03:51.800 thanks so much for coming on. Okay, thanks so much 0:03:51.840 --> 0:03:54.760 for having me, and thanks for the kind of introduction. Yeah, 0:03:54.840 --> 0:03:57.920 so I was really interested in this paper. Maybe just 0:03:57.960 --> 0:04:00.200 to begin with, you could lay out, you know, what 0:04:00.440 --> 0:04:03.600 is the beverage curve and how would you expect it 0:04:03.680 --> 0:04:07.240 to act in normal times. So I think you've already 0:04:07.280 --> 0:04:10.280 introduced the concept of the beverage curve perfectly, So just 0:04:10.400 --> 0:04:15.560 to restate what you discussed, the beverage curve is the 0:04:15.560 --> 0:04:19.400 relationship between the unemployment rate and the job openings rate. 0:04:19.520 --> 0:04:24.640 So job openings are open positions that businesses um want 0:04:24.680 --> 0:04:28.720 to fill and looking to hire form. And this relationship 0:04:28.960 --> 0:04:32.040 is it's a negative relationship. So when the unemployment rate 0:04:32.200 --> 0:04:38.520 is high during a downturn, job openings are low because well, 0:04:38.560 --> 0:04:42.760 the economy is um not working very well and firms 0:04:42.800 --> 0:04:46.440 are reluctant to hire new workers because of the uncertainty 0:04:46.480 --> 0:04:49.480 of how the economy might improve. But as the economy 0:04:49.640 --> 0:04:53.200 improves um and the downturn turns into an upturn. The 0:04:53.279 --> 0:04:57.920 unemployment rate falls because the job openings are being filled, 0:04:58.120 --> 0:05:03.200 and as the economy improves, firm post more open positions, 0:05:03.240 --> 0:05:06.760 so the job openings rate rises as the unemployment rate falls. 0:05:07.480 --> 0:05:12.800 And this is what we see in every recession, and 0:05:12.960 --> 0:05:17.480 the beverage curve basically describes this relationship. So you can 0:05:17.520 --> 0:05:21.440 think of it as a scattered plot of monthly data 0:05:21.480 --> 0:05:24.520 on the unemployment rate and the job openings rate, and 0:05:24.600 --> 0:05:30.239 they line up nicely around this downward sloping beverage curve. Now, 0:05:30.320 --> 0:05:34.920 what is absolutely striking in the COVID recession and COVID 0:05:35.000 --> 0:05:39.880 recovery is that the beverage curve that we've seen in 0:05:39.880 --> 0:05:44.120 the last twenty years pre COVID has changed dramatically and 0:05:44.160 --> 0:05:48.320 in two ways. It has shifted outward, and it is 0:05:48.360 --> 0:05:53.240 also has become much more steep. So the outward shift 0:05:53.480 --> 0:05:57.719 of the beverage curve um that occurred right after the 0:05:57.800 --> 0:06:02.280 COVID shock hits, so essentially starting in March two thousand, 0:06:02.320 --> 0:06:06.640 twenty April, when the unemployment rate shot up um and 0:06:06.680 --> 0:06:11.679 then declined very very rapidly once the economy worked itself 0:06:11.960 --> 0:06:17.720 through the initial COVID shock. So, but this is connected 0:06:17.839 --> 0:06:20.919 with an outward shift in the beverage curve in the 0:06:20.960 --> 0:06:26.760 following sense. So, at any given unemployment rate in normal times, um, 0:06:26.839 --> 0:06:30.360 you can derive and shop openings rate that is required 0:06:30.400 --> 0:06:36.080 to maintain a certain employment level or unemployment level. Now, 0:06:36.200 --> 0:06:39.680 during the first few months of the COVID shock, the 0:06:39.760 --> 0:06:44.159 unemployment rate stayed high but declined, but so did the 0:06:44.240 --> 0:06:48.360 job openings rate. But the job openings rate was at 0:06:48.360 --> 0:06:51.720 a level that actually we hadn't seen before for this 0:06:51.839 --> 0:06:57.080 given unemployment rate. And this has been quite striking. I wanna, 0:06:57.160 --> 0:07:02.000 obviously why dive into why this relationship is the way 0:07:02.000 --> 0:07:04.240 it is right now. But actually before we get to that, 0:07:04.279 --> 0:07:07.320 I actually have a more straightforward question, which is how 0:07:07.520 --> 0:07:10.320 is the job openings rate derived? Where does that number 0:07:10.320 --> 0:07:12.920 come from? Because with the unemployment rate, you know, you 0:07:12.960 --> 0:07:15.520 imagine you ask a thousand people what percentage of you 0:07:15.880 --> 0:07:19.080 want a job and what don't have one now, etcetera, 0:07:19.120 --> 0:07:21.000 you can come up with one. How does how do 0:07:21.120 --> 0:07:25.200 they determine the job opening trade? So it comes from 0:07:25.200 --> 0:07:28.400 the so called trolls data, So the shop openings and 0:07:28.520 --> 0:07:32.280 Labor Turnover survey that the Borreau of Labor Statistics UM 0:07:32.320 --> 0:07:36.920 conducts and they ask businesses a set of questions where 0:07:36.960 --> 0:07:40.680 they really dig deep into what a job opening is. 0:07:41.000 --> 0:07:44.080 Search job opening is defined, it's a position that is 0:07:44.200 --> 0:07:48.560 immediately ready to be filled, for which there's funding, and 0:07:48.600 --> 0:07:53.000 for which firms actively engage in recruiting efforts. And the 0:07:53.080 --> 0:07:57.480 survey goes out to businesses and they report their shop 0:07:57.520 --> 0:08:02.040 openings to the Borough of Labor Statistics and this then 0:08:02.160 --> 0:08:04.520 ends up as the shop openings right, so at both 0:08:04.560 --> 0:08:08.520 total level, but also I'm relative to UM the labor 0:08:08.600 --> 0:08:12.920 force for instance, So I'm gonna jump to UM. The 0:08:13.000 --> 0:08:15.840 next obvious question that Joe just kind of foreshadowed, but 0:08:16.560 --> 0:08:18.640 what do you think is happening here? So you know, 0:08:18.760 --> 0:08:21.560 you mentioned this is sort of an unprecedented move in 0:08:21.600 --> 0:08:27.160 a relationship that has historically held across many different types 0:08:27.280 --> 0:08:31.840 of recessions in many different countries. What's your theory about 0:08:31.840 --> 0:08:36.720 what's happening? So, as you know, we've seen historically high 0:08:36.760 --> 0:08:42.200 shop openings rates, so UM we hit seven percent in 0:08:42.320 --> 0:08:45.280 truly has come down a little bit from this and 0:08:45.320 --> 0:08:47.559 the shop openings the level is about ten and a 0:08:47.640 --> 0:08:53.520 half millions when the unemployment total unemployment is around seven millions, 0:08:53.520 --> 0:08:56.319 so there's a huge gap, and this is the highest 0:08:56.360 --> 0:09:00.280 gap ever measured. So at this point, I think it 0:09:00.360 --> 0:09:04.040 is fair to say that we don't have one clear 0:09:04.080 --> 0:09:07.719 explanation of why the shop openings rate is so high. 0:09:07.760 --> 0:09:11.760 I think it's a combination of variety of things. We 0:09:11.880 --> 0:09:17.280 have seen even before COVID um relatively high shop openings rates. 0:09:17.880 --> 0:09:22.319 So even before COVID, we heard stories from all reports 0:09:22.400 --> 0:09:26.560 from the business sector about about mismatch if you will, 0:09:26.679 --> 0:09:30.199 that firms find it difficult to hire the right workers 0:09:30.840 --> 0:09:34.679 because they don't have the right skills. Even if they interview, 0:09:34.920 --> 0:09:38.720 they don't show up for um, the beginning of um 0:09:39.360 --> 0:09:42.120 of a job, and all kinds of things that we've 0:09:42.120 --> 0:09:46.959 heard anecdotally from firms. Now, in a sense, the COVID 0:09:47.000 --> 0:09:50.880 shock scaled this problem up, so we know that the 0:09:50.920 --> 0:09:56.160 economy shut down, the positions were still there. Funding for 0:09:56.200 --> 0:10:00.320 these positions was there through various programs, the Payment Action 0:10:00.920 --> 0:10:06.559 Program p p P first and foremost, and aggregate demand 0:10:06.679 --> 0:10:09.840 held up incredibly well during this recession. So all of 0:10:09.880 --> 0:10:13.360 these signs point towards a very strong demand for labor 0:10:13.760 --> 0:10:17.560 that shows up in the job openings rate. Now, the 0:10:17.640 --> 0:10:21.600 question is why is this so outsized? And I think 0:10:22.600 --> 0:10:27.040 one of the answers to this question is that there 0:10:27.280 --> 0:10:32.520 is a sense in amongst businesses that the labor market 0:10:32.559 --> 0:10:36.960 is changing, um that the requirements and workers is changing, 0:10:37.600 --> 0:10:42.400 and that in a way, businesses post open positions preemptively. 0:10:42.840 --> 0:10:47.319 So one aspect of this is the high quid rate. 0:10:47.400 --> 0:10:50.040 So we've seen historically high quid rates. So in the 0:10:50.120 --> 0:10:53.240 quid rates, they also come from the UM Job Openings 0:10:53.240 --> 0:10:58.280 and Labor Turnover Survey and they represent voluntary quids of workers, 0:10:58.400 --> 0:11:02.680 presumably into other positions. So there's a very high turnover 0:11:02.679 --> 0:11:05.400 in the labor market, a lot of churn. You can 0:11:05.400 --> 0:11:08.280 think of it this way. So a quit is connected 0:11:08.559 --> 0:11:13.240 with two shop openings. So if a worker quits to 0:11:13.280 --> 0:11:16.200 take another position, well that fills one shop opening, but 0:11:16.280 --> 0:11:21.120 it creates immediately a new shop opening for the firm 0:11:21.120 --> 0:11:24.920 that was left behind, so to speak. And firms businesses 0:11:25.160 --> 0:11:29.040 may respond to this preemptively and post open positions because 0:11:29.040 --> 0:11:31.719 there is concerned that they may not find the right 0:11:31.760 --> 0:11:35.520 workers or replace them. So this actually sort of gets 0:11:35.520 --> 0:11:39.840 back to my previous question, which is if that's the 0:11:39.880 --> 0:11:44.560 case as you describe, okay, firms are anticipating churn, they're 0:11:44.600 --> 0:11:49.760 anticipating quits. Is the nature of posting job openings? Has 0:11:49.840 --> 0:11:54.000 it changed such that at least part of the mismatch 0:11:54.240 --> 0:11:57.640 or part of the changing shape of the beverage curve 0:11:58.320 --> 0:12:01.560 is not simply a relate ship ship between employers and 0:12:01.600 --> 0:12:05.800 employees changing, but a reflection at least in part of 0:12:05.840 --> 0:12:09.480 the nature of how and when businesses say they're looking 0:12:09.520 --> 0:12:12.120 for an employee, and there is certainly it's a very 0:12:12.160 --> 0:12:15.320 good points so and this is certainly part of the story. 0:12:15.400 --> 0:12:18.520 So a lot of chop search, I would say, the majority, 0:12:18.600 --> 0:12:22.880 but now has no moved online, which also has reduced 0:12:22.960 --> 0:12:25.840 the cost of finding workers, right, And I think this 0:12:25.960 --> 0:12:28.120 is also one of the drivers. And this is actually 0:12:28.120 --> 0:12:30.600 what all economic models would tell us that if the 0:12:30.720 --> 0:12:35.320 cost of UM searching for workers of chop search UM 0:12:35.520 --> 0:12:40.000 is UM is slower than more vacancies, more open positions 0:12:40.040 --> 0:12:43.320 are being posted because it simply is less costly. So 0:12:43.360 --> 0:12:44.760 that makes me wonder, I mean, when I think what 0:12:44.920 --> 0:12:47.000 people look at these curves or when they look at 0:12:47.000 --> 0:12:50.520 these mismatches, and I my sense is that there's a 0:12:50.559 --> 0:12:52.400 lot of reasons, but we'll get into that. We look 0:12:52.400 --> 0:12:55.000 at these mismatches, and we say, oh, maybe it's people 0:12:55.080 --> 0:12:57.160 have all these savings that they're not rushing back to work. 0:12:57.600 --> 0:13:03.200 Maybe it's labor and gil's mismatch. Maybe it's unemployment insurance. 0:13:03.400 --> 0:13:07.400 Maybe it's people lack childcare. Maybe it's people don't want 0:13:07.400 --> 0:13:10.600 to go back into an office for fear of risking COVID. 0:13:10.840 --> 0:13:13.720 At some element, there is also just as change, as 0:13:13.760 --> 0:13:16.960 you point out being able to post a job opening online, 0:13:17.320 --> 0:13:20.320 at least some of it might just be that, all 0:13:20.480 --> 0:13:25.439 all things equal, firms maybe posting more openings today than 0:13:25.480 --> 0:13:28.240 they would have had similar economic condition to say occurred 0:13:28.280 --> 0:13:33.719 in the nine Yes, I think that's a very fair point. So, 0:13:33.920 --> 0:13:37.559 but to be clear, so in a way, but it's 0:13:37.640 --> 0:13:41.960 nice about this beverage curve idea that both the job 0:13:42.040 --> 0:13:44.959 openings rate and the unemployment rate are normalized by by 0:13:45.000 --> 0:13:49.400 the labor force. So essentially you can make this discussion 0:13:49.400 --> 0:13:53.080 about labor force participation, which we know has declined and 0:13:53.240 --> 0:13:56.160 is much below ware and it was a pre COVID, 0:13:56.559 --> 0:14:01.960 but the beverage curve essentially nets out label first participation effects. 0:14:16.760 --> 0:14:20.160 As we observe this relationship sort of breaking down, and 0:14:20.160 --> 0:14:24.920 and maybe it's because of this job creation condition that 0:14:25.000 --> 0:14:28.720 you just described, you know, the idea that employers are 0:14:28.720 --> 0:14:31.720 expecting churn, and so they're posting more and more potential 0:14:31.840 --> 0:14:34.960 jobs on various websites to sort of make up for that. 0:14:35.560 --> 0:14:39.400 But we still we still like come back to this 0:14:39.560 --> 0:14:45.040 problem or this issue of employers and employees struggling to 0:14:45.680 --> 0:14:48.800 match with each other. And I'm wondering, do you see 0:14:48.800 --> 0:14:52.160 that more as a problem of some sort of match 0:14:52.280 --> 0:14:58.040 inefficiency the way we're assigning jobs or hiring people for jobs, 0:14:58.080 --> 0:15:01.000 I should say, is just some are more inefficient than 0:15:01.040 --> 0:15:03.480 it used to be. Or is it that we're seeing 0:15:04.080 --> 0:15:08.320 more competition for workers and people are having to our 0:15:08.400 --> 0:15:11.800 employers are having to compete for a sort of smaller 0:15:11.840 --> 0:15:15.880 potential pool of employees. That's a very good point. I 0:15:15.920 --> 0:15:21.000 think it's both of these factors. So when we start 0:15:21.040 --> 0:15:24.720 back the club to the financial crisis, and this is 0:15:25.000 --> 0:15:28.600 when when I became first interested in the beverage curve. 0:15:29.160 --> 0:15:33.000 So during the financial crisis, the unemployment rate h ten percent, 0:15:33.680 --> 0:15:36.200 stayed around between nine and ten for a while and 0:15:36.240 --> 0:15:39.520 would not come down for a substantial period of time, 0:15:40.160 --> 0:15:42.840 and then it declined rapidly as the economy was working 0:15:42.920 --> 0:15:46.560 through this this unemployment overhang. But at that time we 0:15:46.560 --> 0:15:51.160 were talking a lot about precisely this mismatch phenomenon. So 0:15:51.200 --> 0:15:56.480 the mismatch phenomenon describes the idea that, well, simply speaking, 0:15:56.760 --> 0:16:00.040 that workers and firms don't find each other um on 0:16:00.440 --> 0:16:04.640 the matching market. So this could have geographic reasons. During 0:16:04.640 --> 0:16:07.480 the financial crisis, some regions in the United States were 0:16:07.560 --> 0:16:10.880 hit harder than others, which has an implication for job 0:16:11.000 --> 0:16:15.120 openings and open positions. There was a sexual change away 0:16:15.120 --> 0:16:21.880 from construction manufacturing to healthcare other services. So all of 0:16:21.920 --> 0:16:26.720 these issues combine into mismatch, the idea that workers and 0:16:26.760 --> 0:16:31.479 firms don't find each other. Now we see the same phenomenon, 0:16:31.600 --> 0:16:35.080 if you will, in the beverage curve, in the sense 0:16:35.160 --> 0:16:40.000 that this beverage curve relationship has shifted outward in the 0:16:40.240 --> 0:16:42.880 in the scatter plot sense. So in other words, for 0:16:42.920 --> 0:16:46.640 a given unemployment rate, now many more job openings need 0:16:46.720 --> 0:16:51.560 to be posted to reduce the unemployment rate. So this 0:16:51.800 --> 0:16:55.640 is I would say, prima fasci evidence that yes, there 0:16:55.720 --> 0:16:59.400 is mismatch going on. Now, the question is is this 0:16:59.480 --> 0:17:02.040 the same time type of mismatch that we've seen in 0:17:02.080 --> 0:17:05.639 the Great Recession. And I would argue likely not, because 0:17:06.440 --> 0:17:09.480 COVID hit most of the US in a similar way. 0:17:09.840 --> 0:17:15.760 Now we don't see many regional differences, and we know 0:17:15.960 --> 0:17:19.240 that the service sector was hit much harder by COVID 0:17:19.359 --> 0:17:23.480 than UM the financial services sector, for instance, So there 0:17:23.520 --> 0:17:26.640 may be some aspect to this, But I think overall speaking, 0:17:26.640 --> 0:17:29.760 I think there is an aspect of mismatch going on 0:17:29.880 --> 0:17:33.159 that we don't quite fully understand yet, which is connected 0:17:33.320 --> 0:17:38.040 to this this NEXUSUS Tracy mentioned of workers being reluctant 0:17:38.080 --> 0:17:42.679 to return to work, childcare issues, COVID is still still around, 0:17:43.000 --> 0:17:47.600 and also potentially skills changing skills requirement. So but in 0:17:47.680 --> 0:17:52.240 that sense, I think I would argue that what we've 0:17:52.359 --> 0:17:55.600 seen in the second half of the last decades, so 0:17:55.720 --> 0:17:59.320 between two thousand and fifteen two thousand and twenty, that 0:17:59.520 --> 0:18:03.800 this may have been more of an outlier than was 0:18:03.920 --> 0:18:06.640 acknowledged at that time. So we saw the labor force 0:18:06.680 --> 0:18:11.399 participation going up despite all these demographic changes, so it 0:18:11.520 --> 0:18:13.600 brought in a lot of people into the labor force, 0:18:14.640 --> 0:18:19.000 and this has disappeared through COVID. So in terms of 0:18:19.080 --> 0:18:21.840 labor force participation, I would argue that we are now 0:18:21.880 --> 0:18:26.240 almost back to the pre two thousand fifteen trend based 0:18:26.240 --> 0:18:30.400 on cham with demographics. So long story short, I think 0:18:30.400 --> 0:18:33.480 there's a lot going on in the labor market that 0:18:33.560 --> 0:18:37.879 we don't quite fully understand yet, um simply because we 0:18:37.960 --> 0:18:42.040 are lacking the micro data as of this point. And 0:18:42.080 --> 0:18:46.080 the beverage curve just gives this overall snapshot that something 0:18:46.160 --> 0:18:48.440 is going on in the labor market, a structural change. 0:18:49.000 --> 0:18:51.480 So as you mentioned, I mean, if you look and 0:18:51.480 --> 0:18:53.679 I'm looking right now at b LS dot gov their 0:18:53.720 --> 0:18:55.959 beverage curve, they have a nice chart of it over 0:18:56.000 --> 0:18:59.360 a different time period. And as you mentioned, we did 0:18:59.359 --> 0:19:02.240 see a shift outwards in the beverage curve after the 0:19:02.280 --> 0:19:04.520 Great Financial Crisis, so that was already a bit of 0:19:04.520 --> 0:19:07.639 a change. And then of course this current shape of 0:19:07.680 --> 0:19:10.240 the beverage curve, it's blown out way past that. So 0:19:10.280 --> 0:19:13.760 it's clearly to a very uh high degree. And one 0:19:13.840 --> 0:19:17.840 of the possibilities is the so called mismatch and maybe 0:19:17.840 --> 0:19:21.480 that's geographical. Some people think, uh, this is a very 0:19:21.480 --> 0:19:24.879 popular theory after the GFC that it had to do 0:19:24.920 --> 0:19:27.520 with skills or the lack of skills or mismatch. But 0:19:27.600 --> 0:19:30.399 you know, you mentioned construction and so forth. But on 0:19:30.440 --> 0:19:34.000 the other hand, you know that led to people arguably 0:19:34.560 --> 0:19:38.200 prematurely thinking that we had hit maximum employment or that 0:19:38.520 --> 0:19:40.840 you know, at this point there's nothing more that monetary 0:19:40.880 --> 0:19:43.480 policy can do or fiscal policy because at this point 0:19:43.560 --> 0:19:46.760 we just need to upskill workers, etcetera. Instead, what we 0:19:46.840 --> 0:19:50.040 saw is that the unemployment rate just kept going down. 0:19:50.119 --> 0:19:52.480 It was slow, but I think we got down like 0:19:52.520 --> 0:19:55.760 three point four percent prior to COVID. So what is 0:19:55.880 --> 0:19:57.639 in your view what are in your views some of 0:19:57.640 --> 0:20:01.040 the policy up shots from this s idea of mismarriach 0:20:01.160 --> 0:20:04.400 What what is? What is mismartrich define however you want 0:20:04.400 --> 0:20:09.240 to define it? Tell policymakers. So I think my preferred 0:20:09.280 --> 0:20:12.399 angle in terms of thinking about mismatches is really a 0:20:12.440 --> 0:20:16.359 skill story. So does the workforce has the right scat 0:20:16.440 --> 0:20:20.639 of set sort of skills for the requirements that firms 0:20:20.640 --> 0:20:24.639 in the changing economic environment want to have? And of 0:20:24.640 --> 0:20:26.920 course there's a lot of research shots of policy discussions 0:20:26.960 --> 0:20:29.200 about it, but I think the overall sense is that 0:20:29.359 --> 0:20:33.960 the labor force is lagging behind this in terms of 0:20:34.320 --> 0:20:38.959 um stem skills. Um if you will, no, but do 0:20:39.000 --> 0:20:42.320 your to your point. I think it is also fair 0:20:42.359 --> 0:20:47.440 to say that we work caught by surprise how well 0:20:47.720 --> 0:20:51.199 the labor market performed UM in the second half of 0:20:51.240 --> 0:20:54.560 the last last decade, which brought in a lot of 0:20:54.600 --> 0:20:59.480 people from the from the sidelines. So and in that sense, yes, 0:21:00.080 --> 0:21:04.720 growing economy UM growing. I don't above trend can bring 0:21:04.800 --> 0:21:08.760 in additional workers from the sidelines. But much of this UM, 0:21:08.800 --> 0:21:11.320 I think was driven by an expansion in services, a 0:21:11.400 --> 0:21:17.600 shift away from manufacturing to some extent, healthcare sector expanded. 0:21:17.960 --> 0:21:20.119 So I think there is a structural reason for this. 0:21:21.480 --> 0:21:23.520 Just to play devil's advocate for a second, could you 0:21:23.560 --> 0:21:27.320 flip that slightly and argue that maybe the labor market 0:21:27.400 --> 0:21:30.600 or the economy isn't offering up the type of jobs 0:21:31.119 --> 0:21:34.439 that people want. And you know, I say this after 0:21:34.480 --> 0:21:36.560 the experience of the pandemic, when we had a lot 0:21:36.600 --> 0:21:40.439 of anecdotes about people who simply didn't want to go 0:21:40.480 --> 0:21:43.280 back to their service jobs and maybe didn't have to 0:21:43.600 --> 0:21:47.680 because they had higher, you know, unemployment payouts and maybe 0:21:47.680 --> 0:21:51.040 they were day trading game stop stock in their basements 0:21:51.320 --> 0:21:54.680 or cryptocurrency or whatever and didn't feel as much pressure 0:21:54.720 --> 0:21:58.520 to go back to a job that they didn't like 0:21:59.359 --> 0:22:02.720 or value. Is that something that's potentially on your radar 0:22:02.760 --> 0:22:09.240 here it is because it is connected to UM well, 0:22:09.320 --> 0:22:11.399 the outside option of the workers, if you will to 0:22:11.440 --> 0:22:14.840 use the technical term, or the willingness of workers to 0:22:15.880 --> 0:22:20.000 work in low wage shops, if if you will so, 0:22:20.040 --> 0:22:23.560 and yes, I mean this is definitely something that we 0:22:23.640 --> 0:22:28.480 see in the data already that particularly employment in Lesion 0:22:28.520 --> 0:22:32.280 hospitality in the service sector is lagging much behind the 0:22:32.280 --> 0:22:35.879 financial services UM sector, for for instance, And there there 0:22:35.880 --> 0:22:40.760 are good reasons for this. So all the support programs 0:22:40.880 --> 0:22:46.240 UM during the COVID shock and the recovery UM certainly 0:22:46.400 --> 0:22:49.480 changed the financial position of workers. There was no need 0:22:49.800 --> 0:22:54.199 to look for a shop that may not offer the 0:22:54.280 --> 0:22:58.480 same benefits in the same wage that one could get 0:22:58.480 --> 0:23:02.800 through the government support program. So now this is starting 0:23:02.800 --> 0:23:06.800 to disappear. So to take you up on the devil's 0:23:06.840 --> 0:23:11.000 advocate question, so I think if we want to rest 0:23:11.000 --> 0:23:15.280 out the remainder of the slack and the labor market, 0:23:15.280 --> 0:23:17.639 if you will, so, from the gap between four and 0:23:17.680 --> 0:23:20.760 a half percent where we are now to below four percent, 0:23:21.359 --> 0:23:24.760 I think this is probably where it is coming from. 0:23:24.800 --> 0:23:27.880 But to your point, I think this is certainly an 0:23:27.960 --> 0:23:30.680 issue that is on the radar, namely in terms of 0:23:30.720 --> 0:23:35.800 what is maximum employment in this economy. This seems to 0:23:35.880 --> 0:23:39.120 be the question that the FED. And by the way, 0:23:39.200 --> 0:23:41.320 I think it's interesting people should know. We are recording 0:23:41.359 --> 0:23:45.040 this Monday in November twenty two, and we started recording 0:23:45.040 --> 0:23:49.080 at nine am, right at the moment literally we started 0:23:49.080 --> 0:23:52.440 recording right at the moment that it got officially announced 0:23:52.440 --> 0:23:56.080 that President Biden would be renominating Powell. So, assuming he 0:23:56.119 --> 0:23:59.879 gets confirmed, this is the question that Powell will have 0:24:00.240 --> 0:24:03.120 have to answer. How do you think about this question 0:24:03.359 --> 0:24:07.760 of maximum employment and this idea of we wanted you know, 0:24:07.880 --> 0:24:10.280 as you mentioned in the second half of the tens, 0:24:10.640 --> 0:24:13.720 economists were taken by a surprise by how far how 0:24:13.760 --> 0:24:16.439 strong the labor market could get, how many people it 0:24:16.480 --> 0:24:19.240 could bring in, what it could do for labor force participation, 0:24:19.720 --> 0:24:24.280 how low the unemployment rate could get without triggering meaningful 0:24:24.400 --> 0:24:28.280 increase in inflation, and so forth. So on this question 0:24:28.480 --> 0:24:30.960 of you know, obviously there's some head scratching that's going 0:24:31.000 --> 0:24:34.240 to happen. The FET is obviously reluctant to put any 0:24:34.240 --> 0:24:38.000 sort of number on maximum employment. It kind of feels 0:24:38.040 --> 0:24:40.480 like we'll know when we see a type of thing 0:24:40.800 --> 0:24:44.600 inherently subjective, but from your perspective, and from your research, 0:24:45.080 --> 0:24:48.679 how should the FED be thinking about answering that question 0:24:48.720 --> 0:24:52.120 of what what success on the employment front looks like. 0:24:54.080 --> 0:24:59.119 So the Federati surfact stipulates maximum employment UM as the 0:24:59.160 --> 0:25:03.800 first mend that into FAT has always interpreted this well, 0:25:03.880 --> 0:25:07.840 first a little bit more narrower and then a broader 0:25:07.880 --> 0:25:12.720 goal in terms of an unemployment rate that is sustainable 0:25:13.240 --> 0:25:18.639 without generating additional inflation, and where the labor market and 0:25:18.640 --> 0:25:24.880 the turn the labor market, very loosely speaking, are in equilibrium. 0:25:24.920 --> 0:25:29.320 So when I went to college then graduate school, so 0:25:29.400 --> 0:25:32.000 we were thinking of maximum employment as an unemployment rate 0:25:32.040 --> 0:25:34.480 of five percent, which we dropped to four and a 0:25:34.560 --> 0:25:39.160 half percent in the two thousands. So this unemployment rate 0:25:39.359 --> 0:25:43.879 tied to maximum employment can change, of course, and in 0:25:44.119 --> 0:25:47.160 a sense, this is where where we were surprised that 0:25:47.320 --> 0:25:52.880