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Speaker 1: This is taking stock the Fed in focus on Bloomberg Radio.
Speaker 1: This is taking stock on Bloomberg Radio. I'm Kathleen Hayes
Speaker 1: in San Francisco, door, Bloomberg News Bureau, Pim Fox, my
Speaker 1: co host back at Bloomberg World headquarters. We are both
Speaker 1: joined today by John Williams. He's President Federal Reserve Bank
Speaker 1: of San Francisco. We talked him a lot about the
Speaker 1: state of the economy. Says it looks pretty good, particularly
Speaker 1: in the labor market, and yes, conditions may very well
Speaker 1: be in place for a June interest rate increase. But
Speaker 1: there's a big question hanging over the economy right now,
Speaker 1: and that is productivity. Productivity growth seems to have slow.
Speaker 1: That's a big determinant of how far and how fast
Speaker 1: the economy can grow. Also, wages, why aren't they rising
Speaker 1: when the labor market has been so strong? So to
Speaker 1: talk about wage growth? What's driving at and what's not?
Speaker 1: Is Mary Daily? She is Associate director of Research at
Speaker 1: the San Francisco FED. And so Mary's nice to welcome you,
Speaker 1: to thank you, great to be here. So wage growth,
Speaker 1: how how do you look at wage growth? The fact
Speaker 1: that it has it is slowed. If you look at
Speaker 1: average hourly earnings are only up what by two point
Speaker 1: three year over and year with unemployment at five percent?
Speaker 1: It's even at at four point nine? What has happened? So,
Speaker 1: like John, I'm a big believer in the Phillips curve.
Speaker 1: So I think, well, if unemployment should go, if unemployments
Speaker 1: at five, wage growth we should see acceleration as the
Speaker 1: unemployment rates fall in. What we've seen really is what
Speaker 1: we like to think of as a math problem more
Speaker 1: than a wage problem. And what do I mean by
Speaker 1: a math problem? Well, the wage growth is being held
Speaker 1: back by two forces. One force is really good news
Speaker 1: for the labor market. The really good news is that
Speaker 1: a strong labor market is bringing back in workers who
Speaker 1: were sidelined by the recession. They were let go, they
Speaker 1: were lower skilled workers. They got let go in the recession.
Speaker 1: Now they're coming back in because the job prospects are
Speaker 1: brighter and they're getting an opportunity. But they come in
Speaker 1: at lower wages, and those lower wages pull down the
Speaker 1: average wage in the United States, and so that limits
Speaker 1: wage growth. On the other side, we have workers who
Speaker 1: are the silver tsunami, if you will, and they're starting
Speaker 1: to retire. Those are workers who have higher or higher wages,
Speaker 1: higher skills on average. So we've got higher wage workers
Speaker 1: leaving the labor force, the silver tsunami. We have lower
Speaker 1: wage workers entering the labor force who are previously sidelined
Speaker 1: or they're just younger and they were in school. And
Speaker 1: these two factors are holding down wage growth. It's somewhat
Speaker 1: giving us well and it's completely giving us a bit
Speaker 1: of a false signal, false signal on how healthy the
Speaker 1: labor market is. And it's not an idea that slow
Speaker 1: wage growth means we have unmeasured slack in the economy.
Speaker 1: It's really that slow wage growth is these compositional chance
Speaker 1: ages that are often h or I think of him
Speaker 1: as a good sign for the economy, Maria, You don't
Speaker 1: worry though that, um, there has been a hollowing out
Speaker 1: of the middle part of the labor market. You could
Speaker 1: say it started twenty years ago when manufacturing companies started
Speaker 1: hiving off their their payroll functions and their accounting functions
Speaker 1: services jobs. Then you add in technology. So in the
Speaker 1: old end days, when my mom was a secretary many
Speaker 1: years ago, you know, you answered the phone, you type
Speaker 1: letters that there's a for for decades now, all kinds
Speaker 1: of jobs that have been eliminated by some big, big forces.
Speaker 1: Are you concerned that that's going to continue to keep
Speaker 1: wage growth low because you've you've eliminated some of the
Speaker 1: higher paying jobs that would have pushed them higher. So
Speaker 1: one of the things that's really important to think about
Speaker 1: is this job polarization you just referenced, which is the
Speaker 1: hollowing out of middle class class jobs. Those are levels
Speaker 1: of wages, and when you think about wage growth, we
Speaker 1: find that wages grow at all levels of the distribution
Speaker 1: of wages. So if you're a low wage worker, you
Speaker 1: still have three four percent wage growth when the economy
Speaker 1: is doing well, and so we wouldn't think this would
Speaker 1: slow wage growth, but this following out that you refer to.
Speaker 1: If you've been an economists as long as I have,
Speaker 1: you've been thinking about this issue a while. And what
Speaker 1: we've seen is that while we worry about it, each
Speaker 1: and every time that manufacturing gets replaced, steal industry gets replaced.
Speaker 1: Now we're worrying about other types of manufacturing being replaced.
Speaker 1: We see new jobs forming, and the new jobs that
Speaker 1: form are also high skilled jobs. Oftentimes, it's not the
Speaker 1: case that we're just eliminating all high skill jobs replacing
Speaker 1: it with low skilled jobs. We have a rapid growth
Speaker 1: in high skilled jobs, and it's one of the things
Speaker 1: that we have to think about as a nation. It
Speaker 1: means continued investment in human capital and college is going
Speaker 1: to be important to fill those high skilled jobs. Mary
Speaker 1: Daily talking about jobs, just want to point out I
Speaker 1: believe that you dropped out of high school at the
Speaker 1: age of fifteen and delivered donuts in order to support yourself. Correct,
Speaker 1: that is true, okay. I also noted that there is
Speaker 1: a Federal Reserved and Study, a survey that monitors the
Speaker 1: financial and economic status of American consumers. They've been doing
Speaker 1: this since and that you ask this question about whether
Speaker 1: people would be able to come up with four dollars
Speaker 1: for some kind of unplanned financial emergency. The answers were
Speaker 1: not great, and I'm wondering if you could speak to
Speaker 1: the issue of the people who are dealing with being
Speaker 1: put out of work because of productivity gains from automation
Speaker 1: and also from the increased use of robots. They don't
Speaker 1: pay taxes that they also don't cost a company retirement
Speaker 1: benefits as well. What's the future, Well, the future and
Speaker 1: my colleague John Fertile is going to talk about productivity
Speaker 1: in its future, But the future is that automation is
Speaker 1: going to continue. There's just it's an unstoppable force. And
Speaker 1: we've seen this for hundreds of years. That we replace
Speaker 1: individuals with new technologies that do things that we used
Speaker 1: to have to do farming, grading steel. Now we're using
Speaker 1: robots to build cars. Those are just things that are
Speaker 1: going to happen. The The important thing is for individuals
Speaker 1: to respond to that and for the our economy to
Speaker 1: respond to that by ensuring that people have the skills
Speaker 1: to take on the next job. So we're seeing the
Speaker 1: shift in our economy towards more thinking and you see
Speaker 1: how you return on what we call softer skills, people
Speaker 1: working in teams, people being able to organize new processes.
Speaker 1: So if you link it back to how should people respond,
Speaker 1: will invest in themselves to do to get the skills
Speaker 1: necessary to do these new jobs. But if you're thinking
Speaker 1: more about the I think you referenced earlier, a lot
Speaker 1: of people have trouble coming up with four hundred dollars.
Speaker 1: That's a level of economic insecurity that is present, whether
Speaker 1: we have automation or not. It's really a reflection of
Speaker 1: the fact that many individuals at the lower end of
Speaker 1: the wage distribution, they're they're they're in a risky position
Speaker 1: of their one job loss away from being an unable
Speaker 1: to pay a bill or to meet some sort of
Speaker 1: an expense that they've got planned. So for those individuals,
Speaker 1: increasing their skill level, getting getting them into jobs that
Speaker 1: have more security, or if I any way to broad
Speaker 1: their opportunity set is really important thing. So you know, uh,
Speaker 1: John Williams, you are an economist who, like so many economists,
Speaker 1: has this fun, creative side, and one of the things
Speaker 1: about you that black people don't know and until very
Speaker 1: interesting a profile recently was cured by the Wall Street Journal.
Speaker 1: I must say, uh, your your love for punk music
Speaker 1: and how you weave it into things. So I want
Speaker 1: to give you a kind of a at a left
Speaker 1: field question. If you had to take one of your
Speaker 1: favorite songs and use it to depict this question, this
Speaker 1: this tension, right, productivity, labor market, what's going on? Can
Speaker 1: you think? Does anything come quickly to mind of what
Speaker 1: it would be. I'm trying to think of a good
Speaker 1: clash song that has to do with the productivity. It's
Speaker 1: so nothing really uh comes to mind. I think that
Speaker 1: that really what uh Mary's point that was absolutely right.
Speaker 1: The issues we're talking about, our long term structural issues
Speaker 1: around shifts and technology productivity, uh, and what's key for
Speaker 1: our nation's success is really about investing our people. And
Speaker 1: that's not just college. I mean, Mary've mentioned college because
Speaker 1: that's hugely important, but we also know from studies that
Speaker 1: what happens before you even go to kindergarten has huge
Speaker 1: effects in your lifetime earnings, uh and your health and
Speaker 1: all these other things. So, you know, I think for
Speaker 1: as a country, if we want to tackle a lot
Speaker 1: of these issues that were brought up in the last question,
Speaker 1: we really need to, uh, you know, really invest in
Speaker 1: our people from you know, basically from birth all the
Speaker 1: way through college and then and even further. But I
Speaker 1: will I will contemplate how to bring it, either Elvis
Speaker 1: or Elvis Costeller or the Clash into into this issue.
Speaker 1: By the way, I will tell you that this punk
Speaker 1: a description is said that the Wall Street Journal that
Speaker 1: has gotten me a lot of emails, So this is
Speaker 1: not really the Clash and the el of Us were
Speaker 1: not punk. So this is now a whole sidebar of
Speaker 1: research about what exactly was the new wave punk and
Speaker 1: things like that. So that's something that you should be
Speaker 1: looking forward to hearing more about. John Wiz, maybe you
Speaker 1: could just fun and I hate to sound like a
Speaker 1: broken record, but why don't you just raise interest rates
Speaker 1: to a point where people will incentivized in order to
Speaker 1: save money. I mean, you keep talking about this from
Speaker 1: a thirty thousand foot level, but I mean, if people
Speaker 1: can't come up with four dollars to meet an unplanned expense,
Speaker 1: what is the incentive to say that they're getting nothing
Speaker 1: in the bank and then you tell them, okay, go
Speaker 1: buy risky your assets and then they lose their money. Well,
Speaker 1: I don't want them buy in risk your assets. So
Speaker 1: that let me make that absolutely clear. I think you
Speaker 1: know that this is the trade off we face with
Speaker 1: monetary policy. Uh. And I'm not making excuses, but you
Speaker 1: know we have a blunt instrument. Do we want interest
Speaker 1: rates to be higher or lower? With raised interest rates,
Speaker 1: that's probably gonna slow growth create you have fewer jobs created,
Speaker 1: more people who are living uh kind of in the
Speaker 1: situation that Mary described about being at risk. A stronger
Speaker 1: economy Uh, well will help those people who get jobs
Speaker 1: or have more stability uh in the their economic lives.
Speaker 1: But you're absolutely right. These are big social issues that
Speaker 1: we need to think by one think Monterrey policy, either
Speaker 1: raising or lowing interest rates is going to fundamentally change
Speaker 1: some of these issues. Well, thank you so much to
Speaker 1: Mary Delor's daily associate director of Research at the Federal
Speaker 1: Reserve Bank of San Francisco and the President of San
Speaker 1: Francisco Fed himself, John Williams, spending a very generous hour
Speaker 1: of his time with us today on Bloomberg Radio on
Speaker 1: Kathleen Hayes Long Pim Foxes is taking stock and yes
Speaker 1: this is Bloomberg Radio.