♪ <Gavin Jackson> Welcome to This Week in South Carolina.

I'm Gavin Jackson.

This week we look at the labor shortage affecting the state, as well as how inflation and supply chain issues are impacting the economy.

Here in Greenville, the South Carolina Chamber of Commerce hosts a workforce symposium, and we caught up with keynote speaker, Tom Barkin, President and CEO of the Federal Reserve Bank of Richmond.

President Barkin.

Thanks for joining me.

<Tom Barkin> No.

It's great to be with you, Gavin.

>> So, tell me right now, when we look at the biggest issues facing South Carolina and the region, can you pick one, there's supply chain issues?

There's labor shortages.

...there's also just - inflation is a permanent threat right now, it seems like.

Which one do you think is the biggest issue, right now facing the region?

>> I'm very focused on the labor side, because I think it underlies everything.

When you say there's supply chain shortages, it's not as simple as people don't have materials.

Often they don't have enough workers.

...when you talk to people about why don't you add some capacity to alleviate these shortages, people will say I can't find any workers to build to capacity.

...I think labor is behind a good bit of the supply chain side.

I also think to the extent we've had price pressures this year, some of it is labor.

...if you look at people paying more money, let's say in fast food places, and therefore forced to increase their prices, because they've increased their costs, that's labor too.

...so where I'm focused is on the labor side and what makes it interesting important is we have 5 million fewer workers employed today in this country than we did 18 months ago.

...so it's possible, there's been a significant structural change.

People have reassessed their lives, retired, decided to stay home from work, but it's also possible that we don't yet have the circumstances in place to get them into the workforce.

...the difference between having and not having those 5 million workers is a pretty big deal.

>> ...when we look at getting back to bringing those 5 million people back into the workforce, how do you do that?

What are your messages?

What do you think needs to be done to re-engage them in a sense?

>> ...there's a lot of work being done on this topic, but there are few things, I think that are pretty straightforward.

One is, we got to put this virus behind us.

Retirements spiked last year, you can imagine that people in their 60s might have said, "I'm not sure, I'm going to put myself at risk, work in a workforce."

So giving them the confidence that they go back to the workforce and be healthy.

That's important.

Getting schools open and safe and stable.

I hear a lot from parents in South Carolina, - the school's opened up earlier here than in most of the rest of my district, talking about quarantines and kids getting sent home sick, and it's hard to commit to work, if you don't know how you're going to handle your child rearing.

So, that's another piece of it.

Childcare.

That industry is an industry that was troubled before the pandemic.

It's one of those classic industries where the wages are low, and the prices are too high and the profits are too low for people to build.

...so it's just an industry that's not all that functional right now and you will need childcare at scale to be able to support even more people in the workplace.

All that's relevant.

I think the question of how all the various incentives, the hidden vigils hit, and there's been a lot of talk about the enhanced unemployment, but I would point to the stimulus checks, as well, also the child tax credit and maybe even more fundamentally, the amount of money that people have saved, whether it is by these various packages or just because they've spent a lot less, which gives them the financial flexibility to be choosy.

...when you're choosy, you often look for higher wages.

So all of that is going on in the workforce right now.

...I really think getting this virus behind us and get to the other side, that is a really fundamental piece of the puzzle.

<Gavin> - another part too, when you talk about people being choosy.

I think about 4 million people quit in August, it sounded like and about...a fourth of them actually quit without even having other jobs lined up.

What does that indicate to you?

- that people are just looking for something better?

- that they have abilities to, to kind of demand higher wages or look for a better job?

>> Well, I've been talking to a lot of headhunters and others about this topic.

...I think they're four or five things going on together.

One is people generally don't quit during a downturn.

Right?

If you've got a job, you want to keep the job and now that we're sort of on the other side of it, maybe people have a little more confidence to quit, In addition, right?

If people around you have been quitting and coming back with stories of how good their job is, or how much more money they got paid, maybe you think it's time to do that.

There's a looming set of mismatches that exists in the workforce.

I want to work remote but my employer wants me to come back.

Or I want to work in person and my employer wants to go remote.

Or maybe I move with my boyfriend or girlfriend to some other city and haven't told my employer yet.

Vaccine mandates could be relevant to it.

...I don't want to go to a place where everyone isn't vaccinated or I don't want to go back if I have to get vaccinated.

...In a lot of professional settings, I'm hearing stories of people who've been living in workplaces where they're short employees and they just been working harder and harder and harder.

So, there's - <Gavin> Getting paid more?

>> Well, no, there's a doom loop where people leave, you work harder than you leave and I think a lot of companies are kind of struggling with that right now.

...so all of these are leading to elevated quits.

...again, I want to see if we can't get some more folks back in the workforce to loosen the stress here.

>> So do you think employers have maybe re-evaluated what it means to employ people?

Do you think that they've kind of...maybe we need to take some internal looks and say, do we hire enough people?

Are we retaining people?

Are we doing enough to make it attractive for people to stay here, whether that be adding childcare or flexible work hours, - Are these employees running the table, these days?

>> Employers are very much into this conversation right now.

... of course, near term, you only have a few limited choices.

You can hire someone to help you search more.

I hear people investing in recruiters, for example, and you can raise pay and benefits.

...you hear a lot of stories on that.

Longer term, I'm hearing employers ask themselves the question of have we moved from a regime where we were long labor to one where we're short labor, because a lot of employers, if you go back 20 years, made a bunch of choices that implicitly had an assumption that they had a lot of labor.

They went to temps and part times or outside agencies, or they off shored, where they did away with training programs.

...I'm hearing employers now say, What do I need to do now to change this and some of it will be good for the workforce.

Things like bringing training back in-house, things like broadening the set of profiles that you hire, including people with drug records, or prison records, even.

You know, some of that will be good for the workforce.

But some of it will be a challenge for the workforce.

I talked to a fast food chain, that's very much thinking about, well, we have 11 people per store now.

How would we operate with five, whatever combination of less service, don't open the store.

Just use the drive-thru.

Robots to cook your french fries.

All of those things are being looked at, because the one thing you know for sure is you won't be in this kind of dis-equilibrium forever.

You'll raise wages enough that people come in the workforce.

You raise wages, enough that employers start doing other things to lower the number of workers.

Somewhere in there, we'll settle.

<Gavin> ...do you think we'll have some lasting impacts from this, when we look at automation, when you're talking about downsizing, becoming more efficient?

Do you think some of those changes will stick around after all this bounces back out?

>> Well, any automation investment has a lasting impact.

If you go into a factory, now, you'll see a lot of machines, a few people fixing the machines, and not as many people as you think in a manufacturing facility.

...that's part of the legacy of all the automation that was done in manufacturing over the last 20 years.

So, if you go to a fast food place, and it's been automated enough, so that a robot, let's say is cooking your french fries, you're never going to replace that robot with a human again.

So people will then debate is that good, because productivity is good, and those jobs weren't that attractive with a career path anyway, but I do worry about I'll call it the last people into the workforce.

If the jump for the last people into the workforce is too great, if the first job you have in the workforce is repairing that robot, that's a pretty hard job for your first job.

And so, ...I am worried about whether we're going to have as all this plays out enough jobs available for people who want to work to step into the workforce, get their training, and move on.

Another place you can think about this is 16 year olds.

I mean, you may be like me, I started working when I was 16...in a fast food place.

... that was a good place to learn how one works.

It wasn't necessarily my career path.

I chose central banking instead.

But it was a start and to the extent the wages are up.

They'll hire fewer people ...fewer people will start there.

It's just how the math works.

>> There's still a demand for those jobs too, but I want to wrap up this portion by talking about women in the workforce, because we have seen such a decrease of them, and I want to get your thoughts on just how you get that segment back engaged in the workforce, whether it be providing benefits or, you know, what you need to do to get them back in there because it seems like it's a drag on the economy.

But it's also an unknown right now because of COVID and homeschooling and remote work.

>> So, what's interesting is that women's participation in the workforce has dropped four points since about 2000 when it hits peak.

In Canada, in contrast, it's increased five points.

the difference is not college educated women, actually college educated women have kept their participation, even during this pandemic.

They've actually recovered slightly better than college educated men.

The real issue is working class and less educated women in the US.

...it's not that hard.

I think when you think hard about that person, what the challenge is, it's the math, right?

It's the math of what's the benefit of work versus the cost of work and...the benefit includes pay and benefits.

And often, these working class women aren't being paid all that much.

...many of these jobs don't have healthcare benefits.

...the cost is whatever trade off you're making in terms of a second income, or even a first income versus healthcare, if you're on disability, or money you can make in a shadow economy, childcare, or whatever.

So, I think this does come down to, to math in the end.

Now, all that is assuming we get COVID beyond us, we get schools opened, and...stable.

It's not just open but not sending kids home, and you get childcare operating.

So, childcare would be a part of that, too.

I just think the math of it is very interesting.

When you start digging into what it costs to have a quality childcare, together with transportation, uniforms, taxes, forgone benefits, the math isn't all that compelling.

>> We're talking more about a cost going up as well.

We're talking about inflation, South Carolinians are paying more to eat dinner, more to drive their cars to work and then pay more in rent.

It's also going up as well.

When do you foresee this inflation start to taper?

Or are we going to be stuck with it for longer than we expected?

Or how long do we have to deal with this for?

>> Well, I think we all know that the price inflation we're seeing right now is being driven disproportionately by the challenges our economy's had coming back to work after the pandemic.

A lot of it has been in new cars and used cars and car rentals.

That's because, for some reason, we can't get chips.

A lot of it has been returned to normal in places like airlines and hotels and entertainment.

That's because it dropped so much a year ago and now it's back up.

Rents dropped a bunch, a year ago, and now they're coming back up.

So those are factors that are very real.

They're very tangible...they're very tied to this incredibly complicated reopening of our economy.

<Gavin> So, it's not just one person we can blame for this - >> I'm not sure who the person would be So...I think the challenge... is looking in the future.

Nobody has a crystal ball on this.

You know, as I'm talking to businesses, and I'm talking to consumers, I'm trying to ask the question of what do you expect price increases to be like a year ago, a year from now?

...a simple way to ask the question is, do you expect it to be more like the last six months, or more like the last 25 years?

Because we've had about one and a half 2% inflation for the last 25 years?

We've had about depending on the metric, you use three and a half or 4% inflation for the last six months.

...which do you think is right?

Most folks I talked to still believe that this has being caused by disproportionate cost pressures, or supply pressures, which are leading to disproportionate prices, and then we get to the other side of it, it'll settle.

<Gavin> ...are people getting a little too antsy?

...I mean, are people kind of calling on the Fed to start increasing rates ahead of when they should be increasing rates?

Do you think we need to wait to see how supply chain issue concerns settle down, when we see how labor markets continue to maybe expand a little bit more, so there's not these, you know, these long term issues because of wage growth?

>> Well, there are a lot of people who have a good idea about what the Fed should or shouldn't do.

For me, you know, I have two very real questions in my mind that I still think we have a little time to answer.

One is this question of do we come back to the last six months or the last 25 years?

Very interested in that.

We'll know more, you know, over the next couple quarters or so.

The second one is, do these 5 million people come back in the workforce?

It's connected to the first question.

And two months ago, I would have thought we'd have a lot more of them in the workforce, because I thought COVID would be behind us.

I thought schools would be cleanly open.

...I thought unemployment insurance expiring would bring more people in.

That hasn't happened yet at the pace that I expected.

I'm still looking for that to happen, but if you know, we're a couple quarters down the road, and that hasn't happened, that would be a signal to me, too.

>> Tom, with about two minutes left, I want to ask you about supply chain issues we've been talking about.

Do you think there might be some long term changes because of this, because of what we've seen over the past 18 months, that we might see some on shoring of jobs, coming back to the country, whether it be medical supply chains, other critical supply chains, as well as just the fact that we could have business here and not have to worry about the port of Los Angeles or the port of Charleston as much?

>> For sure, you're going to see supply chain changes, the things that I think are inescapable our dependence on any one country, whether it be China or any other country, people I think are stepping back from that I think pretty quickly.

The second is low inventories as a strategy.

I hear lots of stories of people who are restocking inventories with plans to get them to safety stock levels.

You'll note, in the auto industry, Toyota was the least affected by this chip shortage, in part, because of the nuclear incident in 2011, meant that they'd already been through it once.

So they were stocking a lot more chips than I'm told the other manufacturers.

It may well happen - Healthcare, you mentioned that some companies will bring their manufacturing onshore.

When I talked to folks about it, there are two big barriers still.

One is, is the industry doing it or is it just me, because they're all still competitive?

And if the industry's in China or Mexico, and you're manufacturing here, presumably your costs are higher?

So, people are looking for, like in the defense industry, maybe the governmental mandates, certain things produced onshore.

That would do it.

But the second issue gets back to labor.

I mean it's pretty hard to imagine opening a plant here, if we can't staff the plants we have.

So, I do think workforce is important for that, too.

And I think American companies would actually like conceptually, to bring the work back.

But as I said, on the women's participation, the math has to work >> ...one last question, sir.

Just looking at what we can be expecting for the next six months or so.

What are you watching for?

What your folks at home will be watching for when it comes to determining where we're going in this economy?

>> Well, as I said, I'm looking hard at what happens to prices and what happens to employment, that's our mandate.

I think there are a couple externalities, if I could call them that.

They're irrelevant.

I certainly hope we won't have a debt ceiling problem.

That's December 3rd, but you know, would not be good news, if we did.

that has a lot of implications for the full faith and credit of the US government.

Is there additional stimulus passed and whether that additional stimulus is funded or not, is important, and whether in the end, those initiatives create more workers, which they might or actually limit the workforce, which it might?

...the devil is very much in the details of those programs.

So I'm watching closely to see...what they do, and importantly, what they do to work force participation, which I think is just fundamental, and then you've always got to watch for geopolitical events.

>> Plenty of those.

Thank you very much We'll have to leave it there.

President, Tom Barkin He's the president and CEO of the Federal Reserve Bank of Richmond.

Thank you so much.

>> Great to be with you.

Thanks, Gavin.

>> We also spoke with President and CEO of the State Chamber of Commerce, Bob Morgan, I opened up by asking him what the biggest issue is affecting the state's economy?

>> Well, I would agree with him, that it's the resurgence of COVID.

We are not beyond it.

I thought a couple of months ago that we were in a post pandemic economy.

We're not yet.

And so I think, yes, we had a workforce challenge, prior to the pandemic, The coming talent wars that we've all heard about, that is a global dynamic, being exacerbated by the pandemic and we're still dealing with the immediate aftermath of so many people dropping out of the workforce, for the reasons that he talked about.

>> So what do you think is some - what are some of the big issues you're hearing from businesses out there in terms of getting people in the door?

Is it because they're not paying enough?

People are asking for too much money, or they're not qualified enough, or what are the big issues that they're trying to tackle right now in South Carolina, >> What I'm hearing more than anything is lack of skills.

I talked to an automotive manufacturer yesterday.

I can get plenty of resumes in, can start folks in the training programs, but then they drop out, they're not able to keep them.

...so developing the skills for the jobs of the advanced manufacturing economy that we have, appears to be the biggest challenge.

>> ...but there's always been a lot of partnership, too, with the technical colleges in the state.

How are those going?

Are you seeing more programs coming online?

Are you see more apprenticeships coming online to kind of fill these needs, this workforce development issue that's always kind of been present, like you were saying, even before the pandemic?

Are we meeting that demand?

>> Well, I think there's been some good progress there.

We saw the Department of Employment and Workforce, working with the technical college system this summer, to basically offer free education in certain disciplines that are most needed, those skilled jobs.

Someone could continue to draw unemployment, while they got that free certification and the demand for that has been very strong.

So that's encouraging.

It's got to be scaled up to have the impact that we wanted to have.

>> Where are we seeing the most in-demand sectors in the state?

Do you know, off the top of your head ...is it manufacturing?

Is it service industries, or kind of all the above ?

>> - where the challenge is the greatest?

Manufacturing and hospitality and tourism for certain?

>> ...that's just a matter of kind of getting those different jobs and people involved in those careers.

But how do we do that?

I mean, are we getting into the people?

Are we trying to maybe move people from, say, a hospitality service industry to try and get interested in doing something like manufacturing or truck driving even?

>> Well, it's again, offering those certifications which are very specific skill sets that hopefully will produce value well beyond the pandemic, and education, education, education.

Right?

Now, for the hospitality and tourism industry.

You know, they are losing people to other industries, which is a unique challenge.

Manufacturing, that's not so much the case.

Manufacturers lose people to other manufacturers, but there's a whole lot of people who've been in tourism and hospitality who are moving out to other industries.

So that's a unique challenge for them.

I'd also like to add to all of this, it is a national and even global issue.

...just caution to us a little bit.

Walmart has just announced a new, sophisticated high tech distribution center in Spartanburg County, I think they're going to put 450 people to work.

Walmart looks at South Carolina and sees the issue a little bit differently, right?

They see the sixth fastest growing state in the country, they see a state that's attractive as the macro trend of people moving from the northeast and the Midwest to the Sunbelt.

South Carolina gets its fair share.

Maybe we'd like to get a little bit more than our fair share, and not to minimize the challenge to existing employers, but isn't it interesting that an employer like Walmart, which knows this state very well...they do business throughout the state, but they see opportunity here?

>> Yes, I guess maybe what you're saying is that you're not too worried about prospective employers coming to the state prospective companies coming in this state, because even though there are some labor issues that everyone's dealing with, we're still I guess, competitive when it comes to attracting new businesses, >> - which seems a bit counterintuitive, right?

Because we see that the pressure on wages and benefits.

And yet, here's a major employer that knows us well, and that sees opportunity.

>> ...So, Bob, when you're talking to businesses about just, you know, maybe extending benefits are trying to retain talent or recruit talent.

I think we saw hourly earnings in the state increased about 27 dollars from about...25 dollars an hour in 2020.

So we're seeing rising wages.

Are we seeing more benefits?

Are we seeing employers try to do more to keep these employees and attract more employees?

>> Without a doubt, but let's also talk a minute about the vaccine and the proposed, the federally proposed mandate, a lot of employers are trying to figure that out.

Is it a mandate that's needed?

Or are incentives needed?

I'm aware of one company, bought three pickup trucks and raffled them off to employees who had been vaccinated, we see others who are raising the cost of health insurance, for those who are not vaccinated.

We've seen examples of companies not going to wait for the federal government, going to go ahead and, and mandate themselves - like Boeing, like Nephron.

...so I think, you know, there's the long term question of wages and benefits and what not, but in the short term, it really centers around the vaccine, and what do we do about that?

>> ...we're just talking about those companies with over 100 employees to either get the mandated vaccine or get tested a week, every week.

...what are the...feelings when you're talking about different ways to incentivize or to deal with this?

Are businesses happy about this?

Or how are they responding when you're asking them about how this is working?

...maybe they're not happy about this?

>> Well, our polling has showed that a majority of companies are opposed to the federal mandate, but the opposition is rather muted.

There are many companies who are legitimately worried about the impact on workforce, If I'm down 10% already, and if I now am mandated to require a vaccine, what if I lose another 10%?

That's going to dig my hole deeper?

And yet, there are many who would also say, okay, we don't feel like we can do this ourselves.

But we'd like for the federal government to go ahead and do it.

...so there's some muted support that I think comes from first and foremost, companies do not want to see a shutdown, again.

That was a painful experience.

It was more minimal in South Carolina than many other states.

It was still painful here.

I think if you ask people the choice between a potential shutdown versus a federal mandate for vaccines, I think they'd be willing to go along with the federal mandate for vaccines, if it means we can keep the economy open, >> especially even with Governor McMaster saying he'll never shut it back down, if he doesn't have to.

Bob, with maybe a minute and 30 left I want to ask... do you think businesses have come to deal with handling COVID-19 at this point?

You've kind of said earlier that people - it's still a very big unknown, but do you think that they've adapted to it well, at this point where we can have business as normal?

>> I don't know that there's an MBA school that prior to this offered a course in how to deal with the pandemic.

And yet- >> There probably will be - >> Well, if there's not, there should be.

<Gavin> Yeah, there's money, right there.

>> We've all lived through it and we've all tried different approaches, and we've all studied different approaches.

and we've survived to be here today.

...so I do think there's a base of knowledge.

We're all smarter about the subject.

And =, I think that's going to help us avoid the complete shutdown.

The numbers are certainly working in our favor, as it regards the Delta variant, right now.

That's encouraging.

The health experts tell me it could be six weeks, six months that we could see another variant, and so we can't let our guard down.

I do think we know how to be more vigilant.

I do think with every day more Americans are being vaccinated and at the end of the day, that's what's going to get us beyond this pandemic.

>> Then...just really quick, 30 seconds, what's your economic outlook looking like for the state for the next six months or so?

>> Well, I think the next six months may be a little choppy, but I think longer term, South Carolina is on the cusp of, as the governor said recently, we're ready to blast off, but for things caused by the pandemic, the labor shortage, which leads to the inflation, which leads to the supply chain, issues that are all tied together.

We have a remarkably diverse economy.

People want our products and services and I think the future is very bright for South Carolina.

>> We'll leave it there.

Bob Morgan, president and CEO of the South Carolina Chamber of Commerce.

Thank you so much.

>> Thank you.

>> For SCETV, I'm Gavin Jackson, Greenville, Be well, South Carolina.

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