INSIDE ECONOMICS

Mark Zandi:                      Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics and I'm joined by my two colleagues and co-hosts. Ryan Sweet, he's the director of real-time economics and Cris deRitis, the deputy chief economist. Guys I was just in Washington today. It was pretty quiet, surprisingly quiet. Walking the streets it doesn't feel like it's normal. New York feels a lot more like it's back up. DC's has got ways to go.

Ryan Sweet:                      It's a holiday weekend. People probably feel-

Mark Zandi:                      It is?

Ryan Sweet:                      Isn't Columbus day on Monday? My kids are off school on Monday I thought it was-

Mark Zandi:                      I didn't know that. Maybe people took the afternoon off because [crosstalk 00:00:56]

Betsey Stevenson:          It's a federal government holiday. 

Ryan Sweet:                      Yeah, there you go. It's a government-

Mark Zandi:                      Today?

Betsey Stevenson:          It's Columbus day, Monday. Not today.

Ryan Sweet:                      Monday.

Mark Zandi:                      Monday, so you think people are taking a four-day weekend?

Betsey Stevenson:          It's the start of a long weekend?

Mark Zandi:                      Oh, well, there you go.

Ryan Sweet:                      I was there yesterday in DC and it was quiet as well, [crosstalk 00:01:12] so I think there's something to it. 

Mark Zandi:                      Yeah, and that voice you heard listener, is Betsy Stevenson. Betsy, welcome. I'm glad to have you.

Betsey Stevenson:          Great to talk with you. 

Mark Zandi:                      It's a real pleasure and honor to have you. Betsy is at the University of Michigan teaching at the Ford Policy School. How long have you been at Michigan, Betsy?

Betsey Stevenson:          I started at the University of Michigan in 2012 and I know exactly how long has it been because I was pregnant with my youngest child and he turns nine on Sunday. So it's been nine years.

Mark Zandi:                      Wow. We all want to know especially Ryan, are you a football fan?

Betsey Stevenson:          Oh, this is like a thing you're not supposed to ask us because what am I supposed to say here?

Ryan Sweet:                      Yes is the only answer. 

Betsey Stevenson:          Of course, if I was going to be a football fan, I would love Michigan. But I care a lot about children and their development and their brains and I find football a little bit hard to watch because I think these are really young people and I'm not sure I should be watching them smash into each other like that.

Mark Zandi:                      Yeah, good point. Ryan is a huge everything Boston fan and apparently Penn State. I didn't know that about him but a Penn State fan. Betsy you may not know this but University of Michigan is undefeated and so is Penn State and they're going to meet. When Ryan, a couple of weeks from now?

Ryan Sweet:                      Yeah, in a few weeks. 

Betsey Stevenson:          I did not know that.

Mark Zandi:                      Now, there you go.

Betsey Stevenson:          There we go. [crosstalk 00:02:49] I'm going to tell you so my partner Justin, has season tickets, so it's just a very divided household.

Mark Zandi:                      So he's a big fan, Justin?

Betsey Stevenson:          Yeah, he's been to every game so far this season. He'd have a rip-roaring conversation with you about football right now and you know what I do during the game? I do something fun with my children because it's not very crowded around Ann Arbor during the game. 

Mark Zandi:                      Makes a lot of sense. Betsy is a well-known, fantastic economist. You were on the Council of Economic Advisors for a couple of years under President Obama.

Betsey Stevenson:          Yeah, that was actually an interruption of my University of Michigan time. I came here pregnant and then with a nine month old headed to DC and spent a little more than two years on the Council of Economic Advisors then returned to the University of Michigan.

Mark Zandi:                      Was it Jason Ferman, who was-

Betsey Stevenson:          Yeah, Jason was chair and we started on the same day. In fact, Jason played a big role in recruiting me. I didn't quite realize why he had such a vested interest at the time because he didn't tell me he was going to be named chair. But-

Mark Zandi:                      That worked out. 

Betsey Stevenson:          Yeah, it was great. I feel like I learned a lot from him and he's really fantastic.

Mark Zandi:                      Yeah, he's really good. At some point before that you were also the chief economist at the Bureau of Labor Statistics at BLS.

Betsey Stevenson:          Actually at the Department of Labor. The Bureau of Labor Statistics sits within the Department of Labor although it's quasi independent, there's only actually one political appointee in all of the BLS and that's the person who's at the head and even there it's supposed to be a quasi political appointee and they are not supposed to turn over with the presidency because we want our data to be government neutral. We want it to just be the data. But as chief economist at the Department of Labor I did get to work on budget issues related to the Bureau of Labor Statistics so I felt like that was something I really needed to think hard about.

                                             When I was chief economist at the Department of Labor the US unemployment rate was quite high. It was in that number we thought that it wouldn't hit still lurking close to 10% when I started and so I pretty much worked on two things, extending unemployment insurance, can we get Congress to do that and what kind of jobs packages can we pass that would get people back to work faster.

Mark Zandi:                      It sounds very familiar, doesn't it?

Ryan Sweet:                      Yeah.

Mark Zandi:                      I'll come back to that and am I wrong does the BLS also have a chief economist? 

Betsey Stevenson:          No, they don't. They're really about collecting data and it's run by just incredible career public servants who work on designing surveys and collecting data. A lot of the actual data collection gets farmed out to census but BLS owns the data. A really important part of the US government tried to keep our statistical agencies free of any kind of policy analysis.

Mark Zandi:                      Yeah, absolutely. We actually have hired a few people from BLS and two of our stars. One is [inaudible 00:06:34] has been on the podcast a couple of times on labor market issues, she was in BLS and Dante DeAntonio, another star. They're fantastic, well-grounded, very balanced, strong, empirical economic in addition to theory so fantastic economists to have. You mentioned Justin your husband, he's a star economist as well globally and you may not know this Betsy but he spoke at one of my conferences many moons ago and we were honored to have him. I do remember him telling me I thought it was very interesting, we were at dinner and he goes... Like you before the podcast listener Betsy said, "I don't do forecasts, I try not to do forecasts."

                                             I think Justin has that same perspective and he said, "How can you do these forecasts? [inaudible 00:07:37] nothing but stories." I had never thought about it that way so I go, "Yeah, there's got to be a story behind it for sure." So I thought that was very funny. He was great. He's your partner because you had this on your... I was looking at your Wikipedia, you actually say you're partners for tax reasons. I thought that was interesting.

Betsey Stevenson:          In the interview Justin has said that before and it's true that the way we tax families means that it's tax efficient to not be married. It's funny because one of the things the IRS said when the Supreme court case came down and said gay marriage is legal, people were like, "Are you going to convert all of these partnerships to marriages?" And they were like, "No, that could have really negative tax implications for people and we're not in the business of forcing that on anybody. They got to come and reveal themselves as this is their choice." I thought it was funny that they directly said some people remain unmarried for tax reasons which was actually quite interesting because I had wondered whether they would consider that a reasonable choice or not. But it's true, we're not legally married. My kids ask about this every once in a while like, "That's a weird choice." I was like, "We've been really busy." 

Mark Zandi:                      Which is true, you guys are so prolific and do such great work. It's really good to have you, thank you. Of course this is Jobs Friday. The first Friday of every month the jobs numbers from the previous month are released by the Bureau of Labor Statistics, a lot to talk about. So let's dive right in. Ryan you want to play the game, you want to give us a statistic and have us take a crack at trying to figure out what that statistic is? I'm sure this is going to be about the jobs number, right? 

Ryan Sweet:                      It is. 

Mark Zandi:                      Oka, fire away.

Ryan Sweet:                      I think it's a good segue into the big topic. 

Mark Zandi:                      Which is the job market.

Ryan Sweet:                      No, I think we can [inaudible 00:09:53].

Mark Zandi:                      Just for everybody's edification and I'm sure you know but we talk about the economic statistics and we generally play a game to kind of make it easier to digest because it can be a little boring and then we dive into a big topic and it just so it happens today because we have Betsy who's one of the premier liberal economist on the planet, we're going to talk about jobs. So we're going to talk about jobs, jobs and jobs so we can't call it that. So what's your statistic?

Ryan Sweet:                      It's 5.969 million.

Mark Zandi:                      5.696 million?

Ryan Sweet:                      No 5.969 million, call it 6 million. We can run with that.

Mark Zandi:                      Is that having with the number of unemployed-

Ryan Sweet:                      No, you're getting closer though.

Betsey Stevenson:          The number of jobs we'd have to add to get back to our old employment level?

Ryan Sweet:                      That may be the case but no.

Mark Zandi:                      No, that's not. I think it's less than 5 million now.

Ryan Sweet:                      To give you a big hint because this is key to our forecast for stronger job growth, is this number.

Cris deRitis:                       Is that the difference between job openings and unemployed?

Betsey Stevenson:          The number of chips we need to get in the country?

Mark Zandi:                      That's right.

Ryan Sweet:                      I don't want you guys to suffer.

Mark Zandi:                      No, wait a second. So there's 10.9 million open job positions so 5.9 minus 10.9 that would be 5 million. I don't think- 

Ryan Sweet:                      No.

Mark Zandi:                      Okay, fire away. What is it Ryan?

Ryan Sweet:                      So this is the first thing I went to when the new job number came out is the number of people not in the labor force but want a job. 

Betsey Stevenson:          Oh, yeah. 

Mark Zandi:                      That's a good one.

Ryan Sweet:                      There's a litany of reasons why people aren't in the labor force, childcare responsibilities, their own illness and there was 1.6 million people that were unable to work because of own illness in September which is most likely COVID related. 

Mark Zandi:                      1.6, that's a lot.

Betsey Stevenson:          Wow! 1.6 million people that couldn't work but wanted to but couldn't work because of their own illness.

Ryan Sweet:                      They couldn't work because of their own illness.

Betsey Stevenson:          Wow! That's a lot of sick people.

Ryan Sweet:                      It was roughly the same as in August.

Betsey Stevenson:          With 200,000 cases a day and COVID tending to keep people sick for two weeks, I guess that number is not that surprising but when you add it all up like that, that's a lot of people and if all those people were in the labor force we would have had job growth over a million.

Ryan Sweet:                      Exactly.

Betsey Stevenson:          If all those people had been able to work. That's a great number.

Ryan Sweet:                      So just to remind the listener the September employment report includes the week of the 12th and if you look at the trend in COVID cases the seven-day moving average that was right around the peak. So that was like when things were the worst. Now we're on the other side of it so I think job growth is really going to pick up over the next few months.

Betsey Stevenson:          Ryan, thanks for clarifying. That's why I said 200,000 cases a day because that's roughly where we were at during the reference week. 

Mark Zandi:                      Maybe I should have started though without diving right into the game because people don't have context. Maybe Ryan can you just take a couple minutes and just level set? What did the report say? What were the numbers just so people-

Ryan Sweet:                      Overall the employment report was [inaudible 00:13:25]

Mark Zandi:                      We are economists and we were just taking it for granted but maybe we shouldn't do that. So what were the numbers and what was your quick interpretation of the number? 

Ryan Sweet:                      So quick interpretation is, it's disappointing but misleading. The economy added a 296,000 or 294,000 jobs.

Cris deRitis:                       A hundred and-

Ryan Sweet:                      194,000 in September. That's well below the consensus, it's weaker than what we thought it was going to be. The unemployment rate fell to 4.8%. It was more than 5% but that fell because people dropped out of the labor force so it fell for the wrong reason so I literally wouldn't interpret too much into that. Overall job role held back by the government, there was over a hundred thousand decline in government employment and it's really in [inaudible 00:14:11] education employment and seasonal adjustment issues. This is usually a big month when a lot of teachers get rehired. We might've pulled for a little hiring in August but also there's seasonal adjustment problems that contributes to that.

                                             If you strip out government, private employment was up over 300,000, that's closer to our forecast and still weaker than the consensus though. So there was a lot of things to get... I think the knee jerk reaction was this is a weak report but the more you dig into it, Delta had his fingerprints written all over this. Delta's grip on the labor market's going to weaken so I agree with Betsy that the next few months we should see much stronger job growth. So no cause for concern, changes to our forecast because of this are going to be small. It doesn't change our Fed forecast. Overall you don't want to get too hung up in one single report. Particularly again we've talked about this in the past, massive upper revisions to prior months. I think it was almost 170,000 net gain to the prior two months. September is going to get revised up. It's not going to be this week.

Mark Zandi:                      It's disappointing but misleading, is that your interpretation Betsy?

Betsey Stevenson:          I wouldn't necessarily call it misleading. I think if you add August and September together and that deals with the teachers pulled forward into August, that deals with the upward revision for August, you would still see that August plus September even with our revision for August is below what people's forecast for August plus September was. So there's still some disappointment but I completely agree that Delta's fingerprints are all over this. I never get in the business of forecasting but I feel so strongly that the report for October is going to be better and that's because the reference week is next week so I know what people are behaving like right now. I see around me what my friends are doing, I see what people are chatting about on social media and I see where the Delta cases are.

                                             The case rate is half what it was during the reference week in September. So I'm not saying it's going to be a stellar report but it's going to be better. Do we get revisions up? There does seem to be this thing with the BLS which is when we're in a recovery period, they always tend to underestimate on first release. So if you wanted to bet the revisions, it should be, if we got this thing right, you should be able to count on zero as being the revision number but actually it's more than 50% chance. It's an upward revision and that's going to be true next month as well and the month after that because that's just what happens with the BLS as we come out of every session.

Mark Zandi:                      We've seen a surge in business formations, the EIN numbers, the taxpayer identification numbers for new companies has just gone skyward so that's a good sign. It's tough for the BLS to pick that up even after the... We'll have to wait for the benchmark revisions when they come out to really see the impact of that so I agree with you. [crosstalk 00:17:17] I'm sorry go ahead.

Ryan Sweet:                      Next week's a reference period and if you look at Google mobility at workplaces has steadily risen since the September payroll reference period. There's signs that people are going back to work, case counts are lower, box office sales are rising, people are going through TSA checkpoints more. So a lot of the high frequency data that we look at a daily and weekly basis are all improving so October is definitely going to be better.

Mark Zandi:                      Actually that goes to my statistic but I'll come back to that which I'm sure you're going to get right away. This is my go-to statistic. Chris you heard Ryan and you heard Betsy, what's your interpretation?

Cris deRitis:                       I certainly agree with the assessment regarding weakness in September, October is going to be much stronger so no dispute there. I chose this statistic that falls right in line with the discussion here so I'll throw it out.

Mark Zandi:                      Yes, fire away.

Cris deRitis:                       It's 74%.

Ryan Sweet:                      That can't be the female labor force participation rate. 

Mark Zandi:                      That's not the employment [crosstalk 00:18:29]

Cris deRitis:                       You are so close, almost just a little twist on your [crosstalk 00:18:31] No, Ryan he is got a little twist on the demographic. 

Mark Zandi:                      What did he say? 

Ryan Sweet:                      Male?

Cris deRitis:                       No, it's female.

Mark Zandi:                      Catch me up, what did Ryan say?

Cris deRitis:                       Female labor force participation for a 35 to a 44 year old.

Mark Zandi:                      That's a little esoteric. 

Cris deRitis:                       Here's why I chose... It's not just pick one up. That is the prime age demographic that saw the largest decline in labor force participation in the month of September so that's the relevance. I think it speaks right to the Delta variant again, lack of childcare. I'm experiencing this myself. So anecdotal evidence here as well. Clearly there's a real struggle there and that is in my opinion holding back women from returning to the labor force. As the Delta variant continues to decline, I am expecting that to reverse and I would support that stronger October number.

Betsey Stevenson:          Okay, this is going to get straight at my statistic which was 26,000.

Mark Zandi:                      26,000, is it a little related to female labor force, something related to women in the workforce?

Betsey Stevenson:          Yeah, it's a negative number, negative 26,000.

Mark Zandi:                      I know what it is because I saw your tweet.

Ryan Sweet:                      You're on Twitter?

Mark Zandi:                      Actually I am now engaged on Twitter. Sarah is helping me out here, my assistant.

Betsey Stevenson:          I knew the problem was that anything I'd have to say, I've already said on Twitter so you'd be able to catch my stats. I do have one other number that you might not have.

Mark Zandi:                      Before you go there, I wanted to ask you about that because I saw it and I was a little confused. So you're saying in a female employment in the month of September-

Betsey Stevenson:          This is nonfarm payroll jobs. Women had 26,000 fewer jobs in September than they held in August. So that means that 194,000 jobs that were gained more than a hundred percent of them went to men. Men gained 220,000 nonfarm payroll jobs in September over August. If you turn to the employment report, you saw it wasn't that stark but you still see the same pattern. There was an increase in employment for women is much smaller than the increase in employment for men. The negative number tells a darker story and both August and September show a decline in job growth for women.

Mark Zandi:                      Which is consistent with Delta impact, the virus impact.

Betsey Stevenson:          Yeah, it is consistent with the point that childcare as we go back to school is causing a little bit of disruption. 

Ryan Sweet:                      Did anyone look at employment at daycares?

Cris deRitis:                       I did.

Ryan Sweet:                      It's 10% lower than it was pre-pandemic.

Cris deRitis:                       It increased though in September, it was up 17, 18. 

Mark Zandi:                      I'm embarrassed to say, I did not know that in the nonfarm... This is in the establishment survey, you can see how many women are employed in the establishment data. 

Betsey Stevenson:          Yeah, Oh my God, I'm embarrassed for you.

Mark Zandi:                      I know that. 

Betsey Stevenson:          It's table B five.

Mark Zandi:                      I always go to the household survey.

Betsey Stevenson:          Table B five, employment of women on nonfarm payrolls by industry sector seasonally adjusted. 

Mark Zandi:                      I missed that. Jeez, I didn't know that. I just historically always go to the household survey for that and that showed an increase that's why I was confused.

Betsey Stevenson:          Right, so what you see here is that women lost a lot of nonfarm payroll jobs in government, that's not surprising. Female employment in government jobs declined by about 90,000 jobs. So the number of jobs from August to September held by women in government went down by 90,000. They saw some growth in leisure and hospitality but not anywhere near as much as men did. So they added 7,000 jobs that's it, in leisure and hospitality. I'm going to just repeat what Ryan said, you can't take any one month seriously and say this is the be all and end all particularly when you're diving down to how many of these nonfarm payroll jobs are held by women in retail trade. What we do see is retail trade, that's a great example of employment where all the jobs that men held prior to the recession are added back and women are still well below the number of jobs they held in retail trade prior to the pandemic and it fell again for retail trade in between August and... Sorry, it didn't fall. 

                                             I was going to say it fell in between August and September in retail trade and it didn't but you're still seeing numbers that have not really recovered. So it fell a bit in August over July and then rose back up a little bit, so that it's sort of back to its July number. But you can take a look at the jobs held by women and what we saw in August was that more than two thirds of the job gains in nonfarm payrolls went to men and then we see more than a hundred percent in September. So those start to paint a picture and then you turn to the household survey and you see women are getting employment gains in the household survey so it looks a little bit better but they're not getting gains anywhere near as much as men. We're still seeing a picture where the Delta variant slowed women down more than men. That seems to be pretty clear across four different surveys meaning two different surveys, two different months.

Mark Zandi:                      It makes sense. The industries that got creamed were leisure, hospitality, retail, healthcare, these are dominated by women. 

Betsey Stevenson:          Right and healthcare jobs declined in September. 

Mark Zandi:                      Yeah, big decline, a very large decline. So surprising, I was confused by that.

Betsey Stevenson:          I was going to tell you a story from 2010, which was I remember briefing the labor secretary on the data before it got released and she said, "Thank God for health services, that's a recession proof industry. Those jobs never go down." I said, "Do not say that. No such thing as recession proof industry." But we just had enormous demand for healthcare and in a normal recession people don't stop getting medical care as very much. In this recession, I think people find medical care when there's a raging pandemic a little scary and people do put it off. 

Mark Zandi:                      There might be some labor supply issues there too, right?

Betsey Stevenson:          Absolutely.

Mark Zandi:                      If you listen to any hospital they're saying, "I just can't get people." Because they're sick or they're burned out.

Betsey Stevenson:          Because they are sick or they died. We did actually lose some healthcare workers during this pandemic. We never talk about that. We lost some workers and then we've got people who are burned out who have decided it's too risky and people who retired early because they thought it was too risky. I've got a number of letters in the mail from healthcare providers saying, "At my family's request, I have sped up my retirement and we will be transitioning your patient file to..." I do think they're both demand and supply issues going on there. 

Mark Zandi:                      The other issue is if you look at nursing homes and other assisted care, that was declining before the pandemic and obviously got crushed because of the pandemic and continues to decline. I think people are very nervous about having parents or their grandparents in that kind of care environment in the pandemic.

Betsey Stevenson:          This is why it's so important that of the many... There are many things I would like to see get done from a public policy perspective but increasing funding for home based healthcare is really going to be important because people are frightened of nursing based care and two out of three people who provide care for an adult that needs care are women and a lot of those women aren't able to work because of the care demand. So we got to figure something out or we are going to find that it's not all women go back.

Mark Zandi:                      Yeah, there's a lot to unpack we'll come back to many of the things we are discussing but should I give you my statistic? I think the guys will get it pretty quickly. 94.1. 

Ryan Sweet:                      Chris, you can have this one.

Mark Zandi:                      Go ahead, Ryan. This is slam dunk, isn't it? It's too easy.

Cris deRitis:                       Got your record. 

Mark Zandi:                      What is it? 

Ryan Sweet:                      What's up Chris?

Cris deRitis:                       Ryan's got the record I want to see another [inaudible 00:28:03].

Ryan Sweet:                      This one doesn't count because this is like padding. 

Mark Zandi:                      What is it? 

Ryan Sweet:                      Our CNN back-to-normal index.

Mark Zandi:                      Wrong, that's dead wrong. Really, that is what you thought it was?

Ryan Sweet:                      You always go to the CNN back-

Mark Zandi:                      I'm kidding, it is. [crosstalk 00:28:19] So Betsy-

Ryan Sweet:                      I was about to check our website, did we really put the wrong number up there?

Mark Zandi:                      We put together this what we call back-to-normal index is a compilation of a lot of government statistics but a lot of third party data, Google mobility, home base, TSA, checkpoint data, just a lot of third party data. We use statistical techniques to combine it and come up with index equal to a hundred on February 29th 2020 so right before the pandemic. It's daily data, we update it every week and it's turns out to be very... We do it by State too. It's quite interesting to see and it's very sensitive to the pandemic. We could see when Delta hit, it hit the south hard and fast and so Florida which had come all the way back, sunk back into the soup again but it now feels like and this is the thing that's so encouraging, it's turning more positive. 

                                             We had been down to 91%, 92% of normal now we are 94% and it all feels like we're moving in the right direction. I, like you guys I do forecast all day long, I continue to do forecasts. I'm forecasting October, November, December should be good months. I think we're going to get something closer to a million as opposed to 500,000 certainly as compared to 250,000 or 300,000. 

Betsey Stevenson:          The number that Ryan started off with, the number of people who were sick and couldn't work, we just have that number that makes a huge difference and actually it's interesting because I have one more statistic if you want to hear mine.

Mark Zandi:                      Yes, fire away.

Betsey Stevenson:          It's 394,000 but I will tell you right up it's negative.

Mark Zandi:                      Negative 394,000. Is it some decline in some part of unemployment like-

Betsey Stevenson:          Yes, it's decline in the number of employed of a particular demographic.

Mark Zandi:                      Employed or unemployed.

Betsey Stevenson:          Employed.

Mark Zandi:                      394,000 and this comes from the household survey? 

Betsey Stevenson:          Yeah, from the household survey. 

Mark Zandi:                      I don't know I didn't-

Ryan Sweet:                      It's not women-

Mark Zandi:                      No, women were up in this.

Ryan Sweet:                      Women were up?

Mark Zandi:                      Yeah, they were up.

Ryan Sweet:                      I don't know was it-

Cris deRitis:                       Older?

Betsey Stevenson:          People with a high school degree only.

Ryan Sweet:                      That's a good one. 

Mark Zandi:                      That's a good one. 

Betsey Stevenson:          So what we saw in that household survey was a big decline in the number of people employed that have only a high school degree and a decline in the number of people employed who have less than a high school degree. We saw all the employment gains were among people with a college degree or some college. So it's really that case shaped recovery everybody talks about you really see that in the household survey this month. I do wonder if some of that was like, those are people who work in person jobs and if they're sick they stay home. It's really stark and if that also is reflected in the establishment survey then it makes you think hard about what those wage gains are really reflecting because if all the job gains went to college graduates then of course there's going to be higher wage jobs.

Mark Zandi:                      You mean the mix effects, the impact on the average hour earnings? 

Betsey Stevenson:          Yeah, exactly. 

Mark Zandi:                      It's actually been very strong. I do have a series of questions I want to ask the group and Betsy in particular but Ryan going back to that statistic that Betsy mentioned the 1.6 million sick, give us some context. Was that up from where it was a few months ago?

Ryan Sweet:                      Yeah, up from a few months ago but almost identical to what it was in August. 

Mark Zandi:                      Okay, but it must have been a lot higher 18 months or 12, 18 months ago.

Ryan Sweet:                      Yeah, I don't remember the exact number off the top of my head but it was a lot higher.

Mark Zandi:                      Do you think it was lower before Delta hit?

Ryan Sweet:                      Yeah, actually if you graph it along with daily confirmed cases like a seven day or a monthly average, they track pretty closely. They're not identical, but they're close.

Mark Zandi:                      All right, very curious about-

Betsey Stevenson:          That sounds like a very nice graph, I'd love to see that graph.

Mark Zandi:                      ... take a look at that. 

Ryan Sweet:                      I love my [inaudible 00:33:01]. 

Mark Zandi:                      Let's unpack some of this. So one of the riddles that we've been part of the popular discussion and debate around the labor market is you've got 10.9 million of record number of open job positions by orders of magnitude. I can't remember but if you go back pre-pandemic, labor market was pretty tight and I think it was six and a half million, maybe 7 million, that was the peak. That was all time high at that point. So that's a lot of open positions yet we have still 4.8% unemployment which is [inaudible 00:33:40] unemployment. We've got a lot of folks that stepped out of the workforce not even counted as unemployed. That was Ryan's statistic early on. I'm guessing that there's lots of reasons for this Betsy but what would you put at the top of the list? What two or three reasons would you put... I assume one is just people getting sick. Would that be one or what else is going on here?

Betsey Stevenson:          Yes, there are people who are sick. There are people who are fearful and I think the thing that gets missed is all those openings reduce the opportunity cost of not working because in a normal economy or even a weak economy like coming out of the 2008 recession, if I turn down a job offer, I don't know when I'm going to get another one and so that means that the opportunity cost of turning that job offer down is quite high and that reduces the bargaining power of workers. It also pushes people into jobs right away they think, "I better take that." All those openings tell people that if you feel like maybe it's too risky there are too many people getting sick and you wait two weeks, you're not going to lose much. You're going to be able to get another offer in two weeks.

Mark Zandi:                      That's an interesting point. 

Betsey Stevenson:          If you think that this offer you've just gotten is too poor like, "14 bucks an hour, I really want to hold out for 15." You're not really risking not being able to get 14 back. You're going to be able to get that $14 offer back if you turn it down and search another week or two and the chances that you get a higher offer are pretty good. So if you think about the way economists think about where should you set that reservation wage, that wage where you say, "I should take it." We're going to set it much higher when we've got record number of job openings. 

Mark Zandi:                      That's an interesting point, I hadn't even thought of that way but it makes a lot of sense.

Betsey Stevenson:          I think that's just a big part of what's going on and what that does is it just slows everything down because employers get reluctant to make that higher offer. They're not quite sure themselves and workers are like, "No, I'm just going to keep looking." The good news is that once people settle down... Actually people should be in jobs that they're happier to stay in. We should see a decline in separations going forward if that's really what's going on and so I'm optimistic that we're going to have a rougher road getting to a full recovery but once we get to a full recovery, people are in jobs that they're going to feel more settled in that they're not going to have their eyes close to the door as maybe in the past. So I don't think this is necessarily a bad thing but I think that's a big part of what's going on.

Mark Zandi:                      One other theory that was proffered, I haven't heard folks talking about this as much maybe just because the data doesn't bear it out is that all of the government support particularly the supplemental unemployment insurance that was provided to workers as a reason for workers not going back. If you go back a few months ago, that's all I heard particularly from business people that that was the reason people weren't going to work. What do you think of that idea and any evidence bearing on that?

Betsey Stevenson:          What people were saying was if you're gathering unemployment insurance today, you might as well wait until you can go out there and until the unemployment insurance ends and then you can try to find a job. I just don't think that was what was motivating people as much. I think that it provided a cushion that allowed people to say, "I don't want your job, I'm going to keep looking." I think that cushion though it's more about the overall safety net that we provided people during the pandemic. I think the stimulus did that as well, the moratorium on evictions, the child tax credit, all of these things, they didn't tell people not to work. They said, "If you don't take the first job you're offered, you're not going to starve to death."

                                             So you can decide you're going to look a little bit harder, you can go back to school, you can get that credential you want, you can think about moving to a different location where there might be more jobs available. It just gave people a little bit more freedom to be able to make better choices and different choices and I think it's all about slowing things down more than it's about people saying, "I'm just going to sit at home and not work." It seems like what people are doing at home is trying to figure out what their next move is and what they want to do. It's not sitting at home and thinking, "This is the life. I can just pull in the government check and I don't need to work."

                                             The thing that employers are upset about is all this cushion gave workers a lot of bargaining power. So they look at them in the eye and they say, "I don't want that offer. That's a terrible wage. You're going to send me my schedule without any input from me three days in advance and I don't have any control? No, I don't want that kind of job." With the higher wage workers we're seeing things like, "You want me back in the office five days a week? No I'll quit, thanks." It's across the spectrum where workers are saying I, "These are the conditions I want and if I can't get them, I'm just going to look for something else." The good thing is all those jobs out there give them the freedom to do that and that plus government support that means that people don't fear that if they're not bringing home a paycheck right this very second that they're going to starve to death.

                                             This has given us this big increase in worker bargaining power. You mentioned like 2019, we spent years saying, "This labor market's awful tight. When are wages going up? When are workers going to get some bargaining power?" There was no worker bargaining power to be seen. We'd sort of squint at the data and be like, "Maybe we're seeing some wage increases somewhere along the distribution." I started to see some higher wage workers saying things like, "I've always wanted to move to Colorado, can I work remotely?" But what we're seen now is just a massive surge in workers asserting what they want and then actually acting to try to get it.

Mark Zandi:                      Yeah, we do have some data that goes back to the question around UI and its impact on labor markets, the State level employment data. Half the States roughly ended the supplemental UI earlier than was in the legislation, the American Rescue Plan allowed for that supplemental UI to extend through the early September. In some of the Southern Western States bought into the idea that this was causing people not to go take those open positions so therefore they ended the supplemental UI early. Then half the other States mostly in the Northeast and the West Coast kept it until the end of September. 

                                             If you look at what happened to jobs in June, July going into August, there's no discernible difference at least not to the eye. There's no discernible difference in terms of job growth in the States that ended early and in those States that kept it on through the end. I'm sure there's a lot of micro data we're going to have to sift through and there're going to be revisions and we'll see how it all pans out but at least so far the data seemed to suggest that that theory as to why people weren't taking those open positions is a pretty thin one.

Betsey Stevenson:          The thing is, it was sad. Ending those benefits early was sad. It didn't increase employment and the critics of the studies that showed that it didn't increase employment have said, "Those are also all the States that had the Delta variant surging so it's hard to know." I was like, "That's also why they probably shouldn't have ended unemployment insurance early." The thing that was clear early on in those studies showed is even if there were some people who would've gone back to work earlier if we hadn't had such generous unemployment insurance benefits, this was such a small fraction of the unemployed that most of the good effects would be undone by the decrease in money in the pockets of households without jobs. 

                                             So on the one hand you incent people back into the labor force, on the other hand you curtail spending because there's all these houses that lose this income and then the whole thing that comes out in the wash is a big nothing burger except for it's not a nothing burger, it's a big decline in the wellbeing of people who don't have jobs.

Mark Zandi:                      Yeah, going on to wages you brought that up going back to the pre-pandemic as I recall the wage growth, at least as measured by the Employment Cost Index, the ECI or even by the Atlanta Wage Tracker, which tracks the same individuals over time based on individual data so it gets around these mix issues that we know make the average hourly earnings data, the wage data from the monthly employment report problematic because of the mix effects. That was pretty strong pre-pandemic and we're right back to that level right now, pretty close to that rate of growth somewhere around three, three and a half percent something like that. 

                                             Of course there's the other thing to throw into the conversation is that inflation is on the high side. Right now consumer price inflation is 5%, lots of reasons for that but with that backdrop are you at all concerned that what's going on in the labor market, the acceleration and wage growth is an inflationary problem? Is it contributing to the inflation we're seeing? Is it a problem going forward in terms of undesirable high inflation? Does that worry you at all? 

Betsey Stevenson:          I'm guessing that you guys have actually done the calculation so you can say exactly what it's contributing to inflation right now. My understanding is that it's pretty small in terms of its current contribution. I'm more concerned about the decline we've seen in the labor share of income over the last several decades. I was actually just teaching this to my students and I said, "When I was a youngster, when I was in college I was told the labor share of income was fixed, fixed over time, fixed over countries. It wasn't going to change and in graduate school that was what I was taught." Then we start looking at the data and we're like, "That looks like it's falling." And then it kept falling and kept falling and now we know the labor share of income has fallen and that means just in case not everybody's fully up to speed, it means if we took all the GDP and said, "How much of that goes to the workers and how much of that goes to the owners of capital?"

                                             The share going to workers has been declining and that's a problem for the economy. We have to solve that problem. I'm not worried about wage increases. Wage increases can contribute to inflation or they could contribute to a rise in the labor share of income. So it depends on whether they're coming out of profits. If we have some businesses that are feeling a little bit of the squeeze in some of their excess profits are having to go to labor costs but they don't pass it on to consumers or whether this happens in very low margin industries where they pass the cost on to consumers.

                                             It's also going to depend on whether we see workers getting more productive. So I'm not worried about some of the scare stories are about, "Here's a fast food restaurant and they've just introduced an AI machine that's going to do order-taking at the drive-through. We were getting workers replaced at the fry station with a robot." Those things will make all the rest of the workers in the fast food restaurant more productive and justifies higher wages for them. A lot of those jobs weren't the world's best jobs anyhow so as long as we keep growing and we keep training workers and we keep finding places for them to be, those kinds of investments I'm thrilled to see businesses making them because they'll justify higher wages for people.

Mark Zandi:                      Yeah, in fact productivity growth has accelerated consistent with the strong wage gains so the unit labor costs, the difference between wage growth and productivity growth has not budged, that has not changed. Businesses are still enjoying these very high margins and raking in a lot of earnings, corporate profits are very strong despite the increase in wages. At least so far obviously there's a script to be written but it doesn't feel like the wage gains are problematic in terms of inflation.

Betsey Stevenson:          It seems to me like inflation's pretty obvious, container ships they're quadruple what they used to be and the cost-

Mark Zandi:                      Shipping from Shanghai to New York, the container shipping costs are four or five times what they were because of the pandemic.

Betsey Stevenson:          Right, so that's going to push some prices up and that's just going to get ironed out. I thought the magic that we saw with the pandemic was who bought masks in the United States in February 2020 or January 2020 and now I can go to the store and pick up a box of a hundred masks at just about any store. We're really responsive to changes in demand. So people want masks and hand sanitizer now and we make masks and hand sanitizer or we import masks and hand sanitizer but we've figured out how to get it to people. I actually just bought a box of masks and I like the N95s because I think they do a better job.

Mark Zandi:                      They quite a wear though, aren't they?

Betsey Stevenson:          I like them because they create that space in your mouth where they're not right on it, they create the bubble. I have [inaudible 00:49:23] nine-year-old so I'm pretty paranoid but I bought a big box of those from Costco when they first came out in January and I paid $99 for it. I just re bought that box, same box, same manufacturer, same import for $59 and so that price coming down that's like we supply masks now and the supply increased. I do think we see a lot of weird temporary price fluctuations going on that reflect the supply chain problems and their shifts in demand and I do think people might have permanently changed what they consume going forward and we're still trying to learn exactly what those permanent changes are.

Mark Zandi:                      All right. There's a couple more topics I want to hit on but before I do, let me just turn to Ryan and Chris, is there anything that Betsy said that you take umbrage with that you disagree with or want to push back on? It all seems very consistent with what we've been saying. 

Cris deRitis:                       I like the productivity story and I'm a big fan of that and the better matching certainly should contribute to productivity growth along with investment. I think that all makes sense in terms of wage gains not necessarily being inflationary so no objections on my end. Ryan, I don't know-

Ryan Sweet:                      Everything fits into my forecast for inflation coming back down.

Mark Zandi:                      So Betsy you're all so easy, look everyone's on board with you. Well, that's good. Let me turn to another topic quickly because I know we are taking a lot of your time and that is remote work. It feels like the economy is going to recover from this pandemic relatively quickly at least compared to previous recession. So if everything kind of sticks to script and I know you don't like the forecast but everything sticks to my script we'll be back to full employment, we'll be back to like a mid 3% unemployment rate another 12, 18 months from now. So full circle round trip, it'll be like a three year kind of period early 2020 through early 2023 and that's pretty consistent with the Fed's forecast and the CBO's forecast and every everybody who does forecasting, that's where they're landing.

                                             That's about half the length of time it's taken on average in other business cycles since world war II, obviously the one after the financial crisis that took us nine years or 10 years get it all back. So we're going to get back pretty quickly but there is going to be some long-term consequences of the pandemic and the one that I think might be at least from my perspective, a real game changer in lots of different ways is remote work. I'm really curious how you're thinking about that, whether you think it's here to stay and how that's going to evolve and what the implications might be. So what do you think of that, is remote work here to stay?

Betsey Stevenson:          Remote work is here to stay and that is certain. People really want it across the-

Mark Zandi:                      By the way Betsy, that is a forecast and that was a forecast with no uncertainty, no interval there.

Betsey Stevenson:          But that's because zero remote work is a ridiculous number. I'm not going to tell you that it's going to be 36% remote work or 52% remote work but I'm going to tell it's not going to be zero.

Mark Zandi:                      Ryan will tell you that, in fact I'm going to ask him that in a second so go ahead.

Betsey Stevenson:          What you see is people want it and even most employers think the idea of expecting people to come into the office five days a week is just not really going to work. What we've learned is that there are definitely some benefits to face time so people want to see people in the office but there's also some productivity gains that come from people having some quiet time at home and avoiding the commute. I've been championing workplace flexibility and the ability to do remote work for a long time and the argument always was every employer who tried it out found that people save a lot of time not commuting and they give some of that time back to their boss, to their job. If they would have spent an hour commuting, maybe they spend an extra 40 minutes on themselves but they spend an extra 20 minutes working and that's where you can easily get productivity gains because you don't think of them as hours work you think of them as a job? 

                                             So speaking of productivity gains, remote meetings, being able to do things without getting on an airplane that's huge. I think companies are really going to have to think a lot harder about what requires a face-to-face meeting because even like right now we're recording and even if I'd gone across town to a different studio that would have meant that this would have taken an extra hour of my time and that would mean I would do fewer things like this. I have a Principles of Economics textbook and I really like to be able to connect with instructors who are either using my book or interested in using it and just see how things are going with them. I used to fly out to universities and give talks about economics teaching to instructors and watch them teach and I don't.

                                             I can now join their class and be a guest lecturer for 10 minutes in it. It takes me 20 minutes of login, do the little guest's thing and leave. These things that I can do a lot more of them and I can't imagine why I would want to go back to so many things in person and even at the university they said to us this year when it came to academic seminars, "Why do you need such a big budget for so many airplane trips when we can have you do half of them in person and half remote?" And some people who would never come in person are happy to come remote so it actually ends up being a win-win. You get a greater diversity of academic speakers coming through and the university doesn't spend as much at least on that.

Mark Zandi:                      Yeah, I totally agree. Ryan, do you know offhand from the BLS today's report what percent of folks are working remotely because-

Betsey Stevenson:          I do.

Mark Zandi:                      You do? You know that? Oh my gosh!

Betsey Stevenson:          Ryan, do you?

Ryan Sweet:                      Yeah but you go ahead.

Betsey Stevenson:          I might be wrong but my memory was it was 13% which was smaller than I thought.

Mark Zandi:                      What is it Ryan, do you know?

Ryan Sweet:                      Yeah, it's like 13.1%, she got it. 

Mark Zandi:                      That is so rude Ryan. Like you don't know it's 13.1%

Ryan Sweet:                      Because when the podcast is over Mark will call me and be like, "It was 13.1%, why didn't you..." We go up multiple decimal points here?

Mark Zandi:                      I think it's low because that's affected by the pandemic, right? 

Ryan Sweet:                      Correct.

Mark Zandi:                      They're saying, "I'm working at home because I can't work wherever because of the pandemic." So that's why that's come in but that doesn't mean that's not a... The number that are actually working remotely are a lot larger. Like I don't need to work at home, I could be in the office. I'm working at home but not because of the pandemic so I wouldn't be counted on that statistic.

Betsey Stevenson:          That's a great point, I wouldn't be counted in it either.

Mark Zandi:                      Yeah, that's right. One thing about this remote work I'm really curious how you're thinking about this, would remote work how's that going to affect wages? It's like, I'm a Moody's employee. I work in New York. Moody says, "You can work wherever you want." And I say, "I'm going to go work in Tampa, Florida." Wages in Tampa are a lot lower than in New York. Moody says and by the way this isn't what Moody's are saying I'm just picking on Moody's. We can talk about Moody's policies but let's pick somebody else. Goldman Sachs says, "You go to Tampa but your wages have to now be more consistent with Tampa wages."

Betsey Stevenson:          What if then JP Morgan swoops in and says, "We'll pay you a little bit more, we don't care you're living in Tampa."

Mark Zandi:                      So you think that's what's going to happen?

Betsey Stevenson:          Here's the thing, if you got labor demand, you got labor supply. I think you're not going to be able to pay people like, "Wages are lower in Tampa so I'm going to pay you less because you're in Tampa." I don't see how that sticks because you could get an offer from somebody else but what will happen is there's a bunch of people who are like, "There's no way I'm working in New York city, I did not move into that city." And Goldman couldn't hire them but now they can because they're willing to hire people living in Tampa or they're willing to hire people living in Nebraska and that means that they have a greater number of people that they can select from that will push wages down.

                                             That will even push wages potentially down for people in New York because overall the labor supply of potential workers for Goldman Sachs just went way up and what that will do is push wages down. What's likely to happen though is it's going to be a tool that some employers might use to pay people a little bit more. You want to pay people what you think that individual person is worth in terms of what they produce. I want to be really careful here because I never think somebody's salary is what their worth is but you want to be able to pay somebody based on what kind of value you think they're bringing to the firm but you can cause a lot of animosity and reduce overall productivity if you're paying people a bunch of differentiated amounts. 

                                             I can imagine a lot of companies trying to lean on the like, "I'm really paying you less because you live in Tampa not because Mark you're just less productive than Ryan." But at the end of the day, if you're worth the wages you were getting paid in New York then you'll have a bunch of other competing offers that will bid those wages right back up to what you were earning in New York. 

Mark Zandi:                      I think a lot depends on the occupation. If you're in an occupation that you're in a national market or a global market, then you're right it doesn't matter. Your wages are going to get bid right back up. JP Morgan is going to come and say, "I'm going to pay you more. Why wouldn't I do that?" But if you're in an occupation where the labor supply is more of a local supply and that may be folks that work in back office operations for example-

Betsey Stevenson:          That's the whole point of remote work is that this is what's happened is it has changed who you can hire all around the country. 

Mark Zandi:                      And in the world really.

Betsey Stevenson:          It's helped people in weaker labor markets now they can reach out to stronger labor markets and say, "Hello, I'm available. I can do it just remotely." This is part of this sort of grand reallocation is will we see employers who can have people work remotely hire people who live in areas they've never had them work before and what I saw prior to the pandemic was a lot of companies that would bring people in, get to know them, you'd get some work experience, maybe you worked there one year, two years, five years and then they were willing to let you move somewhere else.

                                             Like my publisher, one of my development editors lives in North Carolina not New York but she worked in that New York office for a number of years. They all know her really well and now they let her live in a place where she can afford to buy a house, North Carolina. It's funny because I was talking to her, she was interviewing someone the publisher was hiring and she's like, "They better live in New York." So there's still a view that new employees need to start in the home office but I think that there's going to be some willingness to hire people with a plan to have them work remote and that will change the labor supply particularly in labor markets that were very tight prior to the pandemic and it will help people get jobs who live in labor markets that were quite weak prior to the pandemic.

Mark Zandi:                      Okay, one other set of questions or one question because we are running out of time, President Biden has put forward a very ambitious legislative agenda around various social programs, housing, healthcare, education, childcare, elder care, climate risk mitigation, that's in addition to the public infrastructure plan that's working through Congress as well. The administration argues that the plan will help long-term growth in different ways and improve labor productivity but also labor force participation. Do you buy into that in of all of the different elements of the agenda, the Bill Biden agenda, which one or two of those things do you think is going to be most impactful in terms of effecting longterm labor force participation or growth?

Betsey Stevenson:          I absolutely believe in that and I did this little experiment with my students the other day which is I showed them how much higher incomes would be if we could have maintained the total factor productivity growth we saw in the fifties and sixties through to today. I think they were shocked because they think that everything's driven by changes in inequality but what were we doing in the fifties and sixties? We had the most educated population in the world and we've really fallen behind on that. So what have other countries done? They've invested more in early childhood education which gives kids a really good start, a foundation for building more knowledge and becoming more productive as workers and they've also invested more in making it affordable for them to go to college and complete college. 

                                             We start kids in college at similar rates to other developed countries but we don't graduate them. One of the reasons we don't graduate them is the financial pressures. So from investing in early childhood education to college, all of that is absolutely critical to returning us to being more competitive with other countries and in terms of the productivity of our workforce. You can only grow so much by raising labor force participation because you grow as the labor force participation rises and then it can't go past a hundred percent. 

                                             So again, the key is to not think just about how much labor force participation rises but how much you build a more productive workforce by helping foster continuous work experience. So if we keep women in the labor force through the time period which they're having children and we keep them connected to the labor force and they stay in the labor force, it's not just we'll have higher labor force participation but we actually have a more continuous labor force experience that leads to more productive workers. Another big problem we have is male labor force participation and there I think it really is things like the early childhood education and investing in college that are part of the key drivers there. 

                                             There's a lot in this package that is about boosting our long-term productivity. Asking me to choose is tough because the problem is and I think this is how the president and the administration sees it is what would it mean to try to invest in more productive workers today who are say two or three or four years old when by the time they're old enough to reap the returns on that productivity, we've had enormous destruction due to climate change. We pick investing in children but we don't give them a planet in which they can be productive in 30 or 40 years.

                                             So you can't pick children over climate but if you pick climate we're not investing in the people that can be productive in the planet that we're saving and one of the things that I think the United States has been doing to its detriment over the last, I don't want to say 20 or 30 years, maybe even longer is we've been consuming the investments in infrastructure that previous generations made and consuming it means that there's less there and we need to be adding to that infrastructure investment so that we have the modern internet, we have the modern roads, we have modern bridges. We can't put self-driving cars on the roads because we don't have roads that could have self-driving cars on them right now. 

                                             So how can we take advantage of technology that's developing like self-driving cars if we're not investing in the infrastructure? So I think it's really about how do we build a country that can be more successful economically as well as fairer but more successful economically in the long run in 30 or 40 or 50 years. The thing that really worries me is Congress keeps making decisions based on these narrow ten-year budget windows and what those ten-year budget windows have done is has led us to make decisions that are bad for our children's future and are really focused on a very short-sighted near term.

Mark Zandi:                      Yeah, and the president's trying to break out of that because he's saying, "If you look out 15 years but pay for all this stuff though." He's trying desperately to do that which is exactly right. Well, thank you so much. I do want to let everyone know that your podcast with Justin, Think Like An Economist is just fabulous. It's fantastic, I really enjoy it. Listener, they put us to shame and she's got... If you go up on YouTube you'll see this. I thought I had a tech microphone, she's blown us away with her room there and the microphones. 

                                             But you guys have a great podcast and I want to thank you for coming on. I want to advertise though that I have really engaged on Twitter and now I'm Mark Zandi on Twitter so I'm doing this. I'm in, I'm engaged so please feel free to follow and go to economy.com/InsideEconomics, tell us what you want us to chat about and we'll certainly work on that for you. So with that, we're going to call it a podcast. Take care now.