Transcript

Intro – Michael O’Dell

And we're back! Thanks for joining us for another edition of “So What Who Cares” where we have been parsing recent BLS jobs reports to tell you how will affect talent acquisition and the greater economy as a whole.

Michael O'Dell

All right, Ron, thank you for joining us again for this follow-up addition to the March Jobs report. We are calling this the April Jobs report edition of “So What Who Cares”. Ron is joining us again from his home in Jacksonville, FL. Welcome back!

Ron Hetrick

Nice to be here! Enjoyed the last time.

Michael O'Dell

Thank you, yeah it was great. Hey, since we last talked, I heard a piece of trivia about Jacksonville.
I heard that Jacksonville, FL, has never been at 100 degrees or higher. Is that true?

Ron Hetrick

I never thought about it. It gets really hot! With the humidity, it is like a million... But it may be right! We would never hit 100 actual degrees, I don't know.

Michael O'Dell

I don't know. I just thought that the other day. We’ll have to have our fact checkers check that out before this episode goes live.

Ron Hetrick

Good question!

Michael O'Dell

So last time you were here, we were talking about the March Jobs report. It was a crazy number: 700,000+ jobs added to the US economy in one month. It was this huge difference from where we were a year ago. There were more jobs than there were people. I think it was like 1.1 jobs posted for every person in the workforce and we thought “Hey, it's starting! The rebound is starting in the economy!” After the call, you and I said “Man this is going to be crazy to talk about how big it is next month! We're going to get a million jobs next month.” So, what actually happened, Ron?

Ron Hetrick

So there is simply no way around that. We went there last month, but now it is just so utterly blatant and it is very nice to actually see people talking about it in the press a lot more. If you look at what happened last month, we know right now that the country has more job openings than its entire history: 8.1M. And when you watch what happened, we gained 266,000 jobs. Now that is coming from a household survey. I have an email proof of this. On Tuesday of that week, I emailed an associate of mine and I said “I just can't see how we could possibly come in more than 400 to 500,000” and she said “Well, everybody is saying like 1,000,000 to 2,000,000” and I'm like “But we haven't terminated any of the programs that would put people back to work!” Which is requiring proof of job search. Ending some of these extended unemployment benefits, and certainly PUA&PEUC “pandemic unemployment compensation,” those were still all in place, so I was like, if those incentives haven't been taken away, then I don't see how it happens. When the 266 came, I was probably the only person in the country who kind of smiled because I was like, “OK, true.” It's not about being right as much as you like. I hope I'm not going crazy because what I see is there's none of those conditions that have changed yet since that report came out. Now it's dire. So now you know what full states saying we're going to cut the benefits, six months too late if they're going to do it. And then you have a lot of people going “You know, we got to require proof of job search.” I know Florida, where I live, said May 30th or June 1st, or whenever they are going to start requiring it once again. And about six months too late. But that is an engagement issue, so here's the crazy thing. The crazy thing about last month's jobs report. So, you have the payroll employment side... So that's the one that went up 266,000. If you go to the unemployment side, the Household survey side, you actually see things. If you go to college degree, the amount of unemployed people for people with even an associate's degree in college, you get that number fell. So, these people are increasingly going back to work! Or if you look at the ones without a degree, the amount of people unemployed, that number went up! But yet, millions and millions of the job openings we have right now are actually targeted to that population. So to see that numbers swell at a time when we absolutely desperately needed them, actually kind of reinforces the fact that people were making this effort, maybe coming out of not being in the labor force coming in and try to secure that. So it was just an incredible dynamic to watch take place, that we have never ever more desperately needed people. And yet, that unemployed number kind of swelled a little bit, which I know caught a lot of people by surprise, but it shouldn't. It shouldn't have.

Michael O'Dell

And one of the other things that I noticed too is that there was some, as there always is, some adjustment to previous numbers. They actually adjusted February up a little bit. March went down, I forget what it was, a little bit but they saw that maybe their numbers weren't totally right, which is pretty normal. The thing that kind of surprised me, was always before the monthly job report, we have ADP giving us their job report. And I don't know that I have ever seen ADP's diverged so far from BLS before. The ADP job report said that private employers are going to add 742,000 jobs. I'm not saying that they are wrong, because apparently their system says they added that. What are we missing?

Ron Hetrick

I think there's several factors at play. So, the first one: I came up with my number of what I thought was going to happen. I saw the ADP report and I'm like “Oh man, now I look like a fool. I just got done saying this...”  But you have to understand something. ADP is a payroll processing company and so they really deal largely with large organizations. And where we're seeing a lot of the pain, it's a lot of restaurants and smaller establishments that wouldn't be ADP customers. This can happen at certain times. And an article just came out this past week. Small companies in particular are just absolutely dying. They can't find people, and unlike large companies that may be able to raise wages and try to entice people back, it is almost impossible for your “mom and pop” restaurant or retail store to react to a market situation and try to jump their wages. I mean, they'll put themselves out of their own home if they try to do that. It takes a while for price to adjust when you set new price in, so I think a lot of what you are seeing here is that there was a drag that was occurring, and ADP just missed the drag, while kind of over emphasizing the bits of strength that we are having. And I would say this: we know that people above, at least an associate's degree and higher, we know that their number of unemployed did take a dip, so we know that they were probably returning to work in earnest. Those people are definitely going to be represented in those ADP counts. What you are missing is, once again that lower end worker is probably not going to show up in there just by the nature of those companies.

Michael O'Dell

And so, you referenced with the NFIB article, and CPI and PPI that came out, that consumer price index and the producer price index going up. Are we kicking into inflation mode? What is happening? Is this just a blip?

Ron Hetrick

If you look at the CPI, remove food and energy, because energy can always put you on a little bit of a spin. If you look at that line, it goes like this and every now and then its county jumps up in. Last month, it turned, and it looked like a straight line up into the sky, and this is where you got to be careful. I tweeted about this. I've talked about this. It was on LinkedIn. It was a conversation because somebody was saying, “hey, you know we can't be in wage inflation right now because earnings aren't going up,” and if you look at the real earnings report, real earnings were flat and then you go into the detail and real earnings were up by .7 percentage points. Which is an enormous number! But they were offset by this point. 8% increase in CPI,  it is a real learning, so it has to take into account price.

So, earnings, of course when tapering off into the sky because we had all that money thrown into this economy at people who already had jobs or were collecting a lot of benefits to offset their job. So, you have all of that. So of course, as these earnings are going up or being offset by these price increases as well, and I think that is an incredibly important dynamic because there are people who may make conversation around “Hey, this is going to be a correction for us. Finally, low paying jobs are going to come up to where the markets add. I think it is an incredibly dangerous thing because what allowed people to do these types of things, to spend and drive inflation up, was the fact that we so over inflated things. So, there is a real kind of false sense of what value is, and my fear in all of this is that when the dust settles, no matter how much wages come up, we just set a new floor and then that new floor is now a lot higher number than it was, which will drive once again, kind of the “mom and pop” employers, into a more precarious situation. When you are trying to combat,  certainly the large companies, the Amazon and things who are publicly saying like “Look, we have to have people 15, 18, $20.00 an hour,”  it's just so hard to keep up with those people. But even they don't understand why they are not getting people. It is because they are competing against this kind of government offset. When the government offset is corrected, I think we will see the dust settle a little bit. And then it will take the market time to find its equilibrium. But you can't ever forget. We had a huge labor shortage before COVID. We have a labor shortage now, absolutely, but we are just going to go back to having a regular labor shortage, not this kind of ridiculous one we are having now, but it's still going to be a labor shortage. Right before COVID hit, all the sectors had wage inflation hitting them like crazy. And then everything goes wonky last year. I think if you look at the most recent quarters published for fourth quarter, you see a lot of these curves picking back up. I think they will really Spike earlier this year, and then I think you will see a flat and then it will be interesting as the market tries to find what equilibrium is.

Michael O'Dell

A good segue there about QSR food service, restaurants, fast food last month. So, one of the happy things that happened was that the QSR leisure hospitality added 331,000 jobs last month. People were starting to go back to work in your local mall, restaurants, whatever. And at about the time we were talking, there was announcements of these huge hiring events from Chipotle and Taco Bells and everybody in the world. You also see that Chipotle is bumping up their average from now to June up to $15 on average. Amazon is raising the rates of 500,000 actual employees. You've got tons of other people saying, “Here. This is what we're doing!” talk about this idea like what is the new prevailing wage. Is this a de facto minimum wage? There has been a lot of talk about minimum wage. Do we regulate it, or do we just let it happen?

Ron Hetrick

I think one of the things that you do see is there is a lot of concern about minimum wage and, let's face it, if you were to look at minimum wage on its surface, if you go to any state and you see a minimum wage, you would be like “wow, that's just incredibly low!” But the reality is, so few people ever work minimum wage and if you actually track that through the years, the percentage of people that actually work minimum wage is just really kind of falling away. These companies, the Amazons of the world, they do kind of set a precedent. We even talked to our clients about if you are in an Amazon market, the game is completely different. You can see markets where they got 2000 openings and the next company has 20 openings. It is an incredible force that happens, and so it takes time for people to kind of correct what they're doing. Do I believe Amazon someday is going to go “OK. That was silly. We're going to decrease our wage” ? Absolutely not. The problem with wages, and any economist knows, is there is a lot of stickiness, so they go up and then to get them back down again, you almost have to go through a crisis of epic proportions to pull wage down because wages are pretty sticky. There was already a lot of localities. A lot of states that had kind of file your plans to get their minimum wage out. Those wages that they have. Probably they looked out five years to. I would bet in most of the states those wages have already been met or surpassed, and in a lot of specific locations where there is just a lot of intense pressure. So yeah, will we actually be able to record well what is a minimum wage? I think that is not as important as saying, “can we at least monitor how many people are earning at this particular level or this particular level at this particular level” and it is not evolving over time.

Michael O'Dell

I have even heard a lot of press and a handful of podcasts that have been talking about this. Our friends Chad and Cheese in this industry have talked about minimum wage the other day with an economist. It is very interesting talk about the history of it. Plenty of money. The NPR property did a big deal about it where they talked about what is the real history, from a political perspective as well as historic perspective and what should we do? Should we have a minimum wage or not? 50% of the economists said yes, 50% of them said no, but one of the things that somebody said really stuck out and kind of was a kick in the butt a little bit. But I have thought about it a lot... If you are a company that is operating at the minimum wage today of 7.25 and raising your rates, your labor rates, it is going to make you go out of business. Do we really want you in the economy anyways? And I thought “Oh that's harsh reality, but probably true at this point.”

Ron Hetrick

There is someone going to actually hit this from several different angles. So, the first part is, for years, manufacturing companies in the US faced a reality of “we cannot produce things as cheaply as other countries.” As a result of that, companies moved out of the US and went to other countries. What is interesting is over time, you see a lot of those companies actually ended up moving back to the US because wage inflation occurs elsewhere. There are also production quality issues, and these people end up kind of coming back. Not all of them, but it's different.

Are we hurting in the manufacturing industry? No. Right now, we have got 706,000 job openings in manufacturing, which is the highest in history. This is an industry that is just trying desperately to hire people. This is not an industry that is hurting. There are all kinds of things that happen, these kind of point corrections, I actually agree with the thought of if you aren't able to charge or you can't pay your people in a way that allows you to stay in business, and these kinds of things, then you don't get workers and things happen. But it is an evolution. Then other companies come in and these things happen. Is it the end of all “mom and pop” shops? No! Eventually another one comes in and goes, “OK, our menu is priced like this. This allows us to pay people at that wage” and then they survive. This is the way where people always want to kind of go “That's it, it's going forever.” That's one component.

I want to talk about another one, and it is a little bit of a plug for the article that I just wrote. I called it “The sansdemic demographic drought.” In that article we talk about the fact that the whole universe that we know in the developed world is completely changed now. So, we had a surplus of workers, so if you go back... Let's go way back. Tens, 20s, thirties, 1940s, whatever, you had an enormous supply of low skilled labor. Very little college labor hitting a market so that if you think about basic economics, price/demand equilibrium, the price point could be really low because you had so many people looking for low end jobs. And then you hit the baby boom and it starts to evolve. A lot of people are now going to college. You know a lot of in wage was always kind of going into effect. A lot of these things were happening, but you did have two people now in the workforce and it could have been the man, it could have been the woman, but maybe one of them didn't have a college education, but you were dealing with the largest population ever all in. So, you still need some level of price control because there were just so many people. But that whole thing has completely flipped. So, the boomers are all exiting the labor force, there is not a population to back them up, and now the employers, they're like “we need people, and there isn't anybody out there.” Well, welcome to the flip side of this. Now workers are the ones who are in control of that equation, so it will naturally evolve to companies that are fits, that are really qualified, can really nail things, are going to do well. Then the ones that aren't, aren't going to do well. Just like previously, the workers that didn't have any skills or anything, they didn't make any money. They suffered because there were too many workers. Now it's going to flip to the other side. So, I do believe... You know I'm not a big fan of having control of anything, governments getting involved with things... But I do understand that there are times that, as you go through either demographic changes or as you go through “maybe we've upset the balance a little bit” if you go back to the mortgage crisis, we were way too permissive on loans. That was a government problem. They were too permissive. A lot of people got loans they shouldn't have, and then we have this crash. So, the government came in and kind of bailed out the banks cover for their own faults and not being a little bit more prudent about the way they lend it. So, you have to do things because you already let something get out of control. And I think the way demographics work, but the intentions actually were probably really good, but I think that is going to be an increasingly unnecessary thing going forward. You probably always want that floor because it makes people feel good, but I just think the evolution of just society disappearing labor at works will take care of price going forward.

Michael O'Dell

I read the entire article. Sansdemic. And anybody listening, you should check it out! It is crazy, it is super interesting. I am not going to give the story away, but go to economicmodeling.com and it is right there on the homepage. You can download it.

Can we talk about video games a little bit just before? Or is it giving away too much of the report?

Ron Hetrick

No, no it's not. It's actually a segment in there, and if you read the paper, one thing that may not jump out at you, is that everything is kind of intertwined. So, if I give away how it is all intertwined, then that would be kind of revealing my whole section of the paper. But I do want to talk about that seismic shift in the way people think of work. So, if a worker has all the power, if there is not a lot of workers, then there are reasons why they have a little bit more power than people think. That is all in the article about the necessity of working, and we explain why things have changed that dynamic. But what is really crazy is that, the NVR studied it, the offset and the drop in hours worked, which was a significant drop in hours worked in 2000 and 2015 in prime age men, particularly young men 21 to 30 years old. When they looked at the drop in hours, it was exactly mirrored by the increase in hours they spent playing video games. And you can get far more laughs then “Oh that's not true” and everything, but that was a solid study.

Michael O'Dell

That's crazy!

Ron Hetrick

We know that declining hours was real, and we know that that substitution effect has been real as well. I've heard anecdotal stories of people interviewing and running into the same thing even as the interview... But what is crazy about that is people would say, “I don't understand how video games take men out of the labor force?” And it is basically a symptom of the plug. So, when they were interviewing, these people and asking them about this kind of flip, they are also saying, “how much have you worked in the past year?” And the truth was a lot of these people were taking weeks off at a time. They were going in between jobs. They are playing their video games on a regular basis. The one thing they weren't doing was working all the time.

The other thing in that is they found that 15% of these men, 21 to 30 years old, had not worked one week the entire previous year! So, 15% of these guys had not worked a single week! 21 to 30 years old.

Michael O'Dell

Wow!

Ron Hetrick

That's so crazy to think about that it is a society that's really kind of, I think, to use a really gross analogy, it's the boiled frog.

I think these things have been creeping up over time, but we weren't thinking about it and instead, everywhere I go, every time I speak on the subject, and I've spoken to a lot of associations and things, people kind of go, “Wow, that's funny!” And then afterwards all these adults, successful businesspeople in their 50s and 60s, come up to me and they go, “OK, so my son’s still living at home. He's 28 and he says he's in between jobs right now, but he hasn't looked for work in six months...” and they are like “am I part of the problem?” I'm like... “Yes, you are part of the problem, but you are not alone!” These surveys don't pick up on one or two people. They are picking up broad trends, and I think that this is just a symptom of the plague of we allowed people to take kind of a very hands-off approach to the need to work and it is something that we are so desperate for people now that, as a society, we have got to figure out a way of addressing that problem.

Michael O'Dell

Well, I've got a 6-year-old a 9-year-old and an 11-year-old who play a lot of Fortnite. Am I part of the problem, Ron?

Ron Hetrick

You're fine! You are not part of the problem. Ahahah!

Michael O'Dell

OK, I do tell them to get out and get a job so thanks!

Ron Hetrick

Yeah, my son graduates high school in a couple of weeks, and he's already got his university. And believe me, he's going to get a foot out the door to go to that university because he likes his video games.

But you know what? Hey, I'm older and I like my video games so I'm not going to just drag on video games because I actually still play them. But just saying, I don't play them at the expense of work and that's something we have to be careful.

Michael O'Dell

There's often a Friday night that if you go on Fortnite, you'll see the O’Dell squad, me and the four boys getting rowdy! So, shooting it up a little bit.

Ron Hetrick

Wow, that's awesome. I'm more of a solo game, right. I've got my Red Dead Redemption. That's where I play. It's totally an escape, but you don't use it to escape from life forever. It's just a reprieve versus going to the golf course, things like that.

But that's another thing we do talk about in the article. There are large demographic changes occurring that you can't do anything about. You know people stopped having babies? That's just reality! You can't start having babies and fix the problem because we're done. Like it's already reversed course. In other countries, it's a very desperate situation and the problem that you have is in addition to not creating a population, the population that we have created. It is all in the article if you can look at the graphs, are just not interested in engaging in the labor pool. They are not working, they are not not working... They are just not. They are in a in another place, and we have never needed people so badly as we do now. At a time when they are like “I don't really need to work and I'm not really interested in it” and I think it is a tough situation.

Michael O'Dell

Well, that’s great research! It's scary research, but if you have interest, again, go to economicmodeling.com. It is worth of the download!

That's about it for us today, Ron! Thanks for being with us again. See you a month from now to see what else has happened in the world of Labor. Are people coming back? The Joe Biden's decision to make people search for jobs bring folks back with the workforce? How many jobs in the ad? We will find out in a month!

Thanks for being here!

Ron Hetrick

Yeah, really cool things that we're going to talk about when it comes to that whole pursuing work. So yeah, it'll be fun!

Michael O'Dell

Very good! See you in a few!