WEBVTT - San Fran Fed's Williams, Daly, on Wage Growth and Labor (Audio) 0:00:03.080 --> 0:00:06.480 Global business news twenty four hours a day at Bloomberg 0:00:06.519 --> 0:00:09.560 dot com, the radio, plus Globo Lab and on your radio. 0:00:09.840 --> 0:00:13.840 This is a Bloomberg Business Flash from Bloomberg World Headquarters 0:00:13.920 --> 0:00:16.279 on Catherine Colgary of Bloomberg. Taking Stock is brought to 0:00:16.320 --> 0:00:20.760 you by the American Arbitration Association. Business disputes are inevitable. 0:00:21.040 --> 0:00:25.000 Resolve them faster with the American Arbitration Association, the global 0:00:25.079 --> 0:00:29.320 leader and alternative alternative dispute resolution for over eighty five years. 0:00:29.640 --> 0:00:32.839 Learn more at a d R dot org. Economic and 0:00:32.880 --> 0:00:36.200 earnings concerns are dragging the stock market lower today. China 0:00:36.280 --> 0:00:40.760 and the UK reported weaker than forecast factory data, reminding 0:00:40.800 --> 0:00:45.040 investors of the global economic slowdown, and US earnings remain mixed. 0:00:45.159 --> 0:00:47.680 A i G shares are declining after reported a third 0:00:47.720 --> 0:00:51.320 strate on profitable quarter. Meanwhile, Fiser shares are gaining after 0:00:51.400 --> 0:00:54.040 it raised its outlook. We check the markets every fifteen 0:00:54.040 --> 0:00:56.480 minutes throughout the trading day. Down Industrial leverage is down 0:00:56.520 --> 0:00:59.520 one two points two thirds of a percent trading at 0:00:59.520 --> 0:01:03.000 seventeen thousand, seven hundred sixty eight. SMP five funded down 0:01:03.040 --> 0:01:05.479 sixteen points eight tenths of a percent at two thousand 0:01:05.560 --> 0:01:08.199 fifty four. Then as Jack is down forty one point 0:01:08.240 --> 0:01:11.039 seven eighths of a percent, trading at forty seven seventy six. 0:01:11.400 --> 0:01:14.200 West Texas intermediate crude oil down a dollar seven of 0:01:14.240 --> 0:01:17.479 barrel two point four percent to forty three seventy spockled 0:01:17.520 --> 0:01:20.800 down seven dollar sixty cents an ounce. Twelve thirty ten 0:01:20.880 --> 0:01:23.039 year Treasury up twenty thirty seconds with the yield of 0:01:23.040 --> 0:01:27.840 one point seven nine percent. And that's the Bloomberg Business Flash. 0:01:28.319 --> 0:01:32.480 This is taking stock the Fed in focus on Bloomberg Radio. 0:01:34.959 --> 0:01:37.720 This is taking stock on Bloomberg Radio. I'm Kathleen Hayes 0:01:37.800 --> 0:01:40.760 in San Francisco, door, Bloomberg News Bureau, Pim Fox, my 0:01:40.880 --> 0:01:44.080 co host back at Bloomberg World headquarters. We are both 0:01:44.160 --> 0:01:47.480 joined today by John Williams. He's President Federal Reserve Bank 0:01:47.520 --> 0:01:49.760 of San Francisco. We talked him a lot about the 0:01:49.760 --> 0:01:52.000 state of the economy. Says it looks pretty good, particularly 0:01:52.000 --> 0:01:54.560 in the labor market, and yes, conditions may very well 0:01:54.560 --> 0:01:56.920 be in place for a June interest rate increase. But 0:01:56.960 --> 0:01:59.120 there's a big question hanging over the economy right now, 0:02:00.080 --> 0:02:03.280 and that is productivity. Productivity growth seems to have slow. 0:02:03.400 --> 0:02:05.840 That's a big determinant of how far and how fast 0:02:05.880 --> 0:02:09.560 the economy can grow. Also, wages, why aren't they rising 0:02:10.040 --> 0:02:12.560 when the labor market has been so strong? So to 0:02:12.880 --> 0:02:15.240 talk about wage growth? What's driving at and what's not? 0:02:15.440 --> 0:02:19.359 Is Mary Daily? She is Associate director of Research at 0:02:19.360 --> 0:02:21.800 the San Francisco FED. And so Mary's nice to welcome you, 0:02:21.840 --> 0:02:24.560 to thank you, great to be here. So wage growth, 0:02:25.320 --> 0:02:28.680 how how do you look at wage growth? The fact 0:02:28.720 --> 0:02:31.000 that it has it is slowed. If you look at 0:02:31.000 --> 0:02:33.200 average hourly earnings are only up what by two point 0:02:33.240 --> 0:02:36.080 three year over and year with unemployment at five percent? 0:02:36.080 --> 0:02:39.359 It's even at at four point nine? What has happened? So, 0:02:39.520 --> 0:02:41.600 like John, I'm a big believer in the Phillips curve. 0:02:41.680 --> 0:02:44.280 So I think, well, if unemployment should go, if unemployments 0:02:44.320 --> 0:02:47.000 at five, wage growth we should see acceleration as the 0:02:47.080 --> 0:02:50.040 unemployment rates fall in. What we've seen really is what 0:02:50.120 --> 0:02:52.120 we like to think of as a math problem more 0:02:52.160 --> 0:02:54.200 than a wage problem. And what do I mean by 0:02:54.200 --> 0:02:56.800 a math problem? Well, the wage growth is being held 0:02:56.800 --> 0:03:00.000 back by two forces. One force is really good news 0:03:00.040 --> 0:03:02.519 for the labor market. The really good news is that 0:03:02.639 --> 0:03:05.440 a strong labor market is bringing back in workers who 0:03:05.480 --> 0:03:08.480 were sidelined by the recession. They were let go, they 0:03:08.480 --> 0:03:11.639 were lower skilled workers. They got let go in the recession. 0:03:11.800 --> 0:03:14.000 Now they're coming back in because the job prospects are 0:03:14.000 --> 0:03:16.320 brighter and they're getting an opportunity. But they come in 0:03:16.360 --> 0:03:19.160 at lower wages, and those lower wages pull down the 0:03:19.200 --> 0:03:22.000 average wage in the United States, and so that limits 0:03:22.000 --> 0:03:24.799 wage growth. On the other side, we have workers who 0:03:24.800 --> 0:03:27.359 are the silver tsunami, if you will, and they're starting 0:03:27.360 --> 0:03:29.840 to retire. Those are workers who have higher or higher wages, 0:03:29.919 --> 0:03:32.760 higher skills on average. So we've got higher wage workers 0:03:32.840 --> 0:03:35.360 leaving the labor force, the silver tsunami. We have lower 0:03:35.400 --> 0:03:38.720 wage workers entering the labor force who are previously sidelined 0:03:38.800 --> 0:03:40.720 or they're just younger and they were in school. And 0:03:40.760 --> 0:03:44.240 these two factors are holding down wage growth. It's somewhat 0:03:44.240 --> 0:03:46.680 giving us well and it's completely giving us a bit 0:03:46.720 --> 0:03:49.440 of a false signal, false signal on how healthy the 0:03:49.520 --> 0:03:53.600 labor market is. And it's not an idea that slow 0:03:53.600 --> 0:03:56.880 wage growth means we have unmeasured slack in the economy. 0:03:56.880 --> 0:03:59.960 It's really that slow wage growth is these compositional chance 0:04:00.000 --> 0:04:02.360 ages that are often h or I think of him 0:04:02.400 --> 0:04:05.920 as a good sign for the economy, Maria, You don't 0:04:05.960 --> 0:04:09.800 worry though that, um, there has been a hollowing out 0:04:10.560 --> 0:04:12.560 of the middle part of the labor market. You could 0:04:12.560 --> 0:04:15.480 say it started twenty years ago when manufacturing companies started 0:04:15.560 --> 0:04:19.159 hiving off their their payroll functions and their accounting functions 0:04:19.240 --> 0:04:23.039 services jobs. Then you add in technology. So in the 0:04:23.080 --> 0:04:25.800 old end days, when my mom was a secretary many 0:04:25.880 --> 0:04:28.920 years ago, you know, you answered the phone, you type 0:04:29.000 --> 0:04:32.280 letters that there's a for for decades now, all kinds 0:04:32.279 --> 0:04:35.400 of jobs that have been eliminated by some big, big forces. 0:04:35.520 --> 0:04:38.280 Are you concerned that that's going to continue to keep 0:04:38.320 --> 0:04:40.920 wage growth low because you've you've eliminated some of the 0:04:41.000 --> 0:04:43.280 higher paying jobs that would have pushed them higher. So 0:04:43.320 --> 0:04:45.240 one of the things that's really important to think about 0:04:45.320 --> 0:04:48.159 is this job polarization you just referenced, which is the 0:04:48.200 --> 0:04:52.640 hollowing out of middle class class jobs. Those are levels 0:04:52.640 --> 0:04:54.840 of wages, and when you think about wage growth, we 0:04:54.880 --> 0:04:57.600 find that wages grow at all levels of the distribution 0:04:57.680 --> 0:04:59.719 of wages. So if you're a low wage worker, you 0:04:59.760 --> 0:05:02.520 still have three four percent wage growth when the economy 0:05:02.560 --> 0:05:04.479 is doing well, and so we wouldn't think this would 0:05:04.520 --> 0:05:07.360 slow wage growth, but this following out that you refer to. 0:05:07.720 --> 0:05:09.560 If you've been an economists as long as I have, 0:05:09.880 --> 0:05:12.040 you've been thinking about this issue a while. And what 0:05:12.080 --> 0:05:15.000 we've seen is that while we worry about it, each 0:05:15.040 --> 0:05:18.880 and every time that manufacturing gets replaced, steal industry gets replaced. 0:05:19.279 --> 0:05:22.480 Now we're worrying about other types of manufacturing being replaced. 0:05:23.040 --> 0:05:25.600 We see new jobs forming, and the new jobs that 0:05:25.720 --> 0:05:28.760 form are also high skilled jobs. Oftentimes, it's not the 0:05:28.800 --> 0:05:31.880 case that we're just eliminating all high skill jobs replacing 0:05:31.880 --> 0:05:34.200 it with low skilled jobs. We have a rapid growth 0:05:34.240 --> 0:05:36.560 in high skilled jobs, and it's one of the things 0:05:36.600 --> 0:05:38.640 that we have to think about as a nation. It 0:05:38.640 --> 0:05:42.040 means continued investment in human capital and college is going 0:05:42.040 --> 0:05:45.160 to be important to fill those high skilled jobs. Mary 0:05:45.240 --> 0:05:49.000 Daily talking about jobs, just want to point out I 0:05:49.000 --> 0:05:50.720 believe that you dropped out of high school at the 0:05:50.760 --> 0:05:54.680 age of fifteen and delivered donuts in order to support yourself. Correct, 0:05:55.520 --> 0:05:58.839 that is true, okay. I also noted that there is 0:05:58.880 --> 0:06:02.359 a Federal Reserved and Study, a survey that monitors the 0:06:02.400 --> 0:06:05.960 financial and economic status of American consumers. They've been doing 0:06:05.960 --> 0:06:10.559 this since and that you ask this question about whether 0:06:10.600 --> 0:06:12.840 people would be able to come up with four dollars 0:06:13.560 --> 0:06:18.159 for some kind of unplanned financial emergency. The answers were 0:06:18.160 --> 0:06:20.880 not great, and I'm wondering if you could speak to 0:06:20.920 --> 0:06:23.760 the issue of the people who are dealing with being 0:06:23.760 --> 0:06:27.360 put out of work because of productivity gains from automation 0:06:28.080 --> 0:06:30.920 and also from the increased use of robots. They don't 0:06:30.920 --> 0:06:34.800 pay taxes that they also don't cost a company retirement 0:06:34.800 --> 0:06:38.640 benefits as well. What's the future, Well, the future and 0:06:38.920 --> 0:06:41.360 my colleague John Fertile is going to talk about productivity 0:06:41.360 --> 0:06:44.599 in its future, But the future is that automation is 0:06:44.640 --> 0:06:47.960 going to continue. There's just it's an unstoppable force. And 0:06:48.000 --> 0:06:51.160 we've seen this for hundreds of years. That we replace 0:06:51.800 --> 0:06:54.880 individuals with new technologies that do things that we used 0:06:54.920 --> 0:06:58.200 to have to do farming, grading steel. Now we're using 0:06:58.279 --> 0:07:00.600 robots to build cars. Those are just things that are 0:07:00.600 --> 0:07:04.480 going to happen. The The important thing is for individuals 0:07:04.480 --> 0:07:06.800 to respond to that and for the our economy to 0:07:06.839 --> 0:07:09.320 respond to that by ensuring that people have the skills 0:07:09.320 --> 0:07:11.200 to take on the next job. So we're seeing the 0:07:11.240 --> 0:07:14.960 shift in our economy towards more thinking and you see 0:07:15.040 --> 0:07:17.160 how you return on what we call softer skills, people 0:07:17.200 --> 0:07:20.560 working in teams, people being able to organize new processes. 0:07:20.920 --> 0:07:23.880 So if you link it back to how should people respond, 0:07:23.920 --> 0:07:26.720 will invest in themselves to do to get the skills 0:07:26.840 --> 0:07:29.239 necessary to do these new jobs. But if you're thinking 0:07:29.240 --> 0:07:31.840 more about the I think you referenced earlier, a lot 0:07:31.920 --> 0:07:34.040 of people have trouble coming up with four hundred dollars. 0:07:34.080 --> 0:07:37.559 That's a level of economic insecurity that is present, whether 0:07:37.640 --> 0:07:40.920 we have automation or not. It's really a reflection of 0:07:41.080 --> 0:07:43.720 the fact that many individuals at the lower end of 0:07:43.760 --> 0:07:47.800 the wage distribution, they're they're they're in a risky position 0:07:48.000 --> 0:07:51.000 of their one job loss away from being an unable 0:07:51.040 --> 0:07:52.560 to pay a bill or to meet some sort of 0:07:52.600 --> 0:07:55.240 an expense that they've got planned. So for those individuals, 0:07:55.520 --> 0:07:58.360 increasing their skill level, getting getting them into jobs that 0:07:58.440 --> 0:08:01.440 have more security, or if I any way to broad 0:08:01.480 --> 0:08:04.720 their opportunity set is really important thing. So you know, uh, 0:08:04.960 --> 0:08:08.360 John Williams, you are an economist who, like so many economists, 0:08:08.360 --> 0:08:11.880 has this fun, creative side, and one of the things 0:08:11.920 --> 0:08:14.160 about you that black people don't know and until very 0:08:14.960 --> 0:08:17.840 interesting a profile recently was cured by the Wall Street Journal. 0:08:17.880 --> 0:08:21.440 I must say, uh, your your love for punk music 0:08:21.520 --> 0:08:24.040 and how you weave it into things. So I want 0:08:24.040 --> 0:08:26.040 to give you a kind of a at a left 0:08:26.080 --> 0:08:27.880 field question. If you had to take one of your 0:08:27.880 --> 0:08:31.360 favorite songs and use it to depict this question, this 0:08:31.360 --> 0:08:35.679 this tension, right, productivity, labor market, what's going on? Can 0:08:35.720 --> 0:08:37.360 you think? Does anything come quickly to mind of what 0:08:37.400 --> 0:08:40.200 it would be. I'm trying to think of a good 0:08:40.400 --> 0:08:43.079 clash song that has to do with the productivity. It's 0:08:43.120 --> 0:08:45.960 so nothing really uh comes to mind. I think that 0:08:46.040 --> 0:08:49.920 that really what uh Mary's point that was absolutely right. 0:08:49.920 --> 0:08:52.640 The issues we're talking about, our long term structural issues 0:08:52.679 --> 0:08:56.880 around shifts and technology productivity, uh, and what's key for 0:08:57.000 --> 0:09:00.200 our nation's success is really about investing our people. And 0:09:00.200 --> 0:09:02.360 that's not just college. I mean, Mary've mentioned college because 0:09:02.360 --> 0:09:05.120 that's hugely important, but we also know from studies that 0:09:05.240 --> 0:09:07.960 what happens before you even go to kindergarten has huge 0:09:08.000 --> 0:09:11.720 effects in your lifetime earnings, uh and your health and 0:09:11.760 --> 0:09:14.000 all these other things. So, you know, I think for 0:09:14.160 --> 0:09:15.959 as a country, if we want to tackle a lot 0:09:15.960 --> 0:09:17.920 of these issues that were brought up in the last question, 0:09:18.120 --> 0:09:21.680 we really need to, uh, you know, really invest in 0:09:21.720 --> 0:09:24.599 our people from you know, basically from birth all the 0:09:24.640 --> 0:09:27.560 way through college and then and even further. But I 0:09:27.600 --> 0:09:30.000 will I will contemplate how to bring it, either Elvis 0:09:30.120 --> 0:09:33.199 or Elvis Costeller or the Clash into into this issue. 0:09:33.400 --> 0:09:35.360 By the way, I will tell you that this punk 0:09:36.520 --> 0:09:38.800 a description is said that the Wall Street Journal that 0:09:38.920 --> 0:09:40.920 has gotten me a lot of emails, So this is 0:09:40.920 --> 0:09:42.839 not really the Clash and the el of Us were 0:09:42.840 --> 0:09:45.560 not punk. So this is now a whole sidebar of 0:09:45.640 --> 0:09:49.760 research about what exactly was the new wave punk and 0:09:49.840 --> 0:09:51.640 things like that. So that's something that you should be 0:09:51.640 --> 0:09:54.480 looking forward to hearing more about. John Wiz, maybe you 0:09:54.520 --> 0:09:56.320 could just fun and I hate to sound like a 0:09:56.360 --> 0:09:58.680 broken record, but why don't you just raise interest rates 0:09:58.679 --> 0:10:01.480 to a point where people will incentivized in order to 0:10:01.559 --> 0:10:04.040 save money. I mean, you keep talking about this from 0:10:04.040 --> 0:10:06.199 a thirty thousand foot level, but I mean, if people 0:10:06.240 --> 0:10:09.199 can't come up with four dollars to meet an unplanned expense, 0:10:10.040 --> 0:10:12.319 what is the incentive to say that they're getting nothing 0:10:12.360 --> 0:10:14.560 in the bank and then you tell them, okay, go 0:10:14.640 --> 0:10:17.959 buy risky your assets and then they lose their money. Well, 0:10:17.960 --> 0:10:19.720 I don't want them buy in risk your assets. So 0:10:19.800 --> 0:10:22.360 that let me make that absolutely clear. I think you 0:10:22.360 --> 0:10:24.160 know that this is the trade off we face with 0:10:24.200 --> 0:10:27.840 monetary policy. Uh. And I'm not making excuses, but you 0:10:27.840 --> 0:10:29.400 know we have a blunt instrument. Do we want interest 0:10:29.480 --> 0:10:31.719 rates to be higher or lower? With raised interest rates, 0:10:31.760 --> 0:10:35.199 that's probably gonna slow growth create you have fewer jobs created, 0:10:35.240 --> 0:10:37.520 more people who are living uh kind of in the 0:10:37.600 --> 0:10:41.240 situation that Mary described about being at risk. A stronger 0:10:41.240 --> 0:10:44.400 economy Uh, well will help those people who get jobs 0:10:44.480 --> 0:10:48.199 or have more stability uh in the their economic lives. 0:10:48.280 --> 0:10:50.720 But you're absolutely right. These are big social issues that 0:10:50.760 --> 0:10:53.280 we need to think by one think Monterrey policy, either 0:10:53.360 --> 0:10:56.000 raising or lowing interest rates is going to fundamentally change 0:10:56.200 --> 0:10:59.000 some of these issues. Well, thank you so much to 0:10:59.120 --> 0:11:02.319 Mary Delor's daily associate director of Research at the Federal 0:11:02.320 --> 0:11:04.120 Reserve Bank of San Francisco and the President of San 0:11:04.120 --> 0:11:07.400 Francisco Fed himself, John Williams, spending a very generous hour 0:11:07.440 --> 0:11:09.520 of his time with us today on Bloomberg Radio on 0:11:09.640 --> 0:11:12.160 Kathleen Hayes Long Pim Foxes is taking stock and yes 0:11:12.160 --> 0:11:13.240 this is Bloomberg Radio.