- What do you make of the US economy emerging from the pandemic recession?

The messages from the experts are mixed, is inflation here to stay?

It depends on the perspective.

Does the additional federal unemployment insurance hold people back from reentering the workforce?

Maybe, but there are other factors.

One economist says we've entered into a take this job and shove it economy.

We talked with Dr. Betsey Stevenson on Newsmakers.

You may have noticed that we're hiring signs placed outside numerous businesses across West and Southwest Michigan.

Well, they're posted across much of the nation and there's the debate over inflation pressures and whether it's transitory or more permanent.

For big picture perspective, we turn it to Dr. Betsey Stevenson, professor of public policy and economics in the Gerald R. Ford School of Public Policy at the University of Michigan.

You served as the chief economist of the US Department of Labor from 2010 to 2011.

And as a member of the council of economic advisors from 2013 to 2015, advising president Barack Obama on social policy, labor market and trade issues.

Betsey's also co-host of the Think Like an Economist podcast.

Dr. Betsey Stevenson, thank you so much for joining us on Newsmakers.

You just had a couple of credentials we needed to clear up there.

Nice work.

- Thank you, it's a pleasure to get to talk with you today.

- You as well.

And all of this, our conversation today was sparked from a New York Times podcast that I listened to was you and as reclined, this was a couple of weeks ago.

And what struck me is the humanity in which you look at the labor market, not just numbers.

Yes, people are numbers in a large perspective when you look at the economy, but there are people and they have feelings and they're your neighbor and a spouse and a son and a daughter, and they're all maybe reassessing their lives right now.

And this pandemic might've taught us a lot about self value and worth and the economy.

- Well, I think that's a really important thing to remember when you're talking about workers, is there's more to work than just the wage, right?

Is how you feel on the job, it's whether you feel like you're accomplishing something you want to accomplish in your life, whether you feel well-treated, whether you can feel proud of what you do.

If you think about the kinds of emotions we're trying to get out of our kindergartners, when they go to school, we want them to feel a sense of accomplishment and a sense of pride.

Those are the kinds of things we wanna feel at work every day.

And so we have to think about workers as being people.

And I think if we step back and instead of thinking about the economy and workers, and you just think about yourself, well, you know that there is a time in your life, probably depending on how old you are that you've already been through, where you thought, am I on the right path, am I doing the right?

And that's often triggered by something that's deeply personal, maybe a birthday, the loss of a loved one, something that makes you question whether you wanna change jobs, whether you wanna go in a different direction.

Well, the pandemic has sort of been that trigger for the whole nation.

And that's really unusual, right?

We don't all have a mid-life crisis at once.

We don't all have these sorts of trigger points where we stop and reevaluate our life, usually together in mass but sometimes we do.

And I think that that's happened when we've seen things like coming out of World War II.

We saw people have children at much younger ages than they never had children before, everybody wanted to hunker down and start a family.

And that will all happen sort of in mass.

I think the pandemic is gonna shape how we work and how we want our lives to move.

And I think a lot of us are in this process of re-evaluation and then economists are stepping back and saying, hey, well, what's happening to the labor market.

Some of it's wages, some of it's fear and some of it's reevaluation.

- There are those who like to point their finger at the unemployment insurance, the federal unemployment insurance as this extra money.

And so therefore people are not eagerly going back to either their old job or to seek out a new career, but there are other factors involved in this.

- Quite so I just, I think that's missing the broader point.

Most people are not going to decide to stay home because they're getting a few hundred extra bucks a week that they wouldn't have gotten if they wouldn't have otherwise gone.

So unemployment insurance can discourage some people.

I will give that to the conservatives who worry about it, but we're short about 10 million jobs and I don't think there are 10 million people sitting at home on their couch and saying $300 a week.

That's the life sitting on the couch?

That's the life for me.

I just don't think it's that many people.

So the bigger question is where's the millions of people who should be coming back, why aren't they coming back, what are they doing instead, and what will need to happen to pull those people back into the labor force?

And I don't think it's gonna be, oh, take away the benefits and all of a sudden, you're gonna have 10 million people apply for jobs starting tomorrow.

And I should also say, we're not seeing across the board labor shortages, what we're seeing is people not wanting to come back to difficult underpaid jobs right now, some of that might be because they're not at risk of starvation with these benefits but I think that we should ask ourselves how important is it to get people back into low wage jobs that we should go back to sort of threatening them with starvation if they don't go back those jobs.

- Then what is it?

What are the factors at play?

I mean, I'll throw a couple out there.

I'm not the economist, you are.

How much of it is childcare and women in the workforce?

How much of it is just safety and not feeling or not convinced that we're through this pandemic and not having everybody vaccinated that there is that personal safety and security at work?

What are some of the factors that you're seeing?

- So, the childcare is an issue for some people, for sure.

But the thing is actually most people don't have small children at home right now.

So if we're looking at the macro economy there are some researchers who showed this, they said, look, it can't be that big of a macro factor because mothers with young kids are only 12% of the labor force.

So even if it's having a big effect on those mothers, that's not gonna be a big effect on the macro economy.

But in some sense, we're making a mistake, looking for a single smoking gun.

That's the whole problem.

There's not a single smoking gun.

There's a family out there that can't go back to work because of a child.

They don't have childcare.

So they're not going back to work.

There's somebody else out there that's not going back to work because they're still very worried about COVID and safety.

There's somebody else out there that's not going back to work because they actually have some health problems because they got COVID and they are suffering from say long COVID.

There's somebody else out there that is staying at home because they're getting benefits right now and the jobs that are out there are not that appealing to them.

All those things are out there.

And only looking at one of them, I think, is missing the really big picture.

I also think that there's the hard thing for us to talk about is people who were essential workers, who kept working during COVID, who had their health at risk, many of whom got COVID, many of whom saw family members get covered, many who lost loved ones and kept doing so for pretty low wages, a lot of them are really fed up.

They want something different.

They've been looking, they spent COVID because we were in a crisis, an emergency situation.

You can't get benefits if you just quit.

If you say, I don't wanna be at work at the grocery store, it's too dangerous and normally pay me nine bucks an hour anyhow.

You don't qualify for unemployment benefits.

So they kept on doing what they needed to do to feed their family but I think they started to have their eye on the door.

Now, what we're seeing is we're opening back up.

Some of those people that had that eye on the door, and they're taking the exit, they're trying to figure out what else they can do.

And that means the supply of workers into certain types of jobs, jobs where they have to deal with the public.

The public has been very abusive and angry towards them around the pandemic.

And so you can think about waitstaff, people in grocery stores, they're just very frustrated right now and it is hard to hire, absolutely.

But we're also seeing articles about people, about people working in restaurants, taking unprecedented abuse from customers.

That's not people won't do that for the wages that they were working that job at in 2019.

We need to have a national conversation about how to treat people with respect at work and treat people are serving us with respect and what is a fair wage that people who are putting their health on the line to be doing in-person work should expect to be able to receive.

- At some point, people are gonna need to come back to work.

- Absolutely, and what we're seeing is at the bottom wages are getting pushed up and that's gonna help a lot.

We've seen teenagers this summer are filling in.

I think it's the highest employment rate of teenagers in a very, very long time.

We're gonna have to have some patience and realize that either the wages go up, the quality goes down or some combination of the both.

- How do we make this work?

We'll get to inflation because we do have those inflationary pressures out there.

Because when wages go up, then you're factoring in this inflation, right?

You're driving the inflation train to some degree when wages go up.

Is it the bonus at the front end that helps to keep inflation down.

I'm gonna let you (indistinct) I'm gonna let you explain all this.

- So with all due respect, I'm not talking about raising your wage or my wage.

- No, no I'm fine.

- Right, so I'm not talking about rates.

So inflation is a generalized rise in prices, and that means a generalized rising wages.

What we're seeing now is a rise in wages at the bottom that is compressing the difference in the wages between the middle and the bottom, and maybe the top and the bottom as well.

But that, it's a compression that's not necessarily gonna lead to much inflation because we're not talking about raising everybody's wages, we're talking about raising the wages at the bottom, and some of that might come through in higher prices, but it's a very small amount of it, partially because wages are a small part of the cost companies face.

And the other part is that low wage workers are a small part of the labor force so raising only their wages isn't gonna lead to higher overall inflation.

- Historically, is this long overdue, and is this the more, I guess holistic way for wages to rise from the bottom instead of sometimes at $15 an hour, that should be the minimum wage and let's make that law.

- Well, I mean, that's absolutely the irony, or I don't know if that irony is the right word here, the Biden administration has been pushing for $15 minimum wage, advocates have been pushing for $15 minimum wage.

And the other thing advocates have been saying is BART workers in mass could have a lot of bargaining power.

And what we're seeing is COVID convinced a lot of workers that they weren't gonna do low wage work at nine, 10, $11 an hour anymore.

And what did that do that put upward pressure on those wages?

So that's market forces pushing the wages up.

It's kind of funny to me 'cause it's usually the same people who are against the minimum wage.

You say, let's just let market forces do it that are complaining right now that market forces are pushing those wages up.

Part of what's pushing it up is getting as not just unemployment insurance, some of the folks who were doing those jobs, they said, this has gotten so awful, I'm gonna go back to school and get a better job.

I'm gonna go get some additional training and look at a different industry.

So it's not that they're all sitting home.

They're looking to make a move into some other kind of career that's gonna have perhaps better pay, but also better treatment and maybe be a little bit safer for their health.

Those are market forces.

They're pushing wages up.

We are seeing that we're getting that $15 minimum wage, not uniform like a minimum wage law would be, but we're seeing those wages getting pushed up to 15 through market forces.

I think that this is a reckoning that is a long time coming.

I don't know if I would go as far as to say, isn't this a better way to do it rather than to just pass that minimum wage law.

And certainly, it's leading to a lot of consternation.

I watch employers who are just bound and determined to continue to try to find somebody at $9.30 an hour in Michigan.

And I'm like, just, you're gonna have to go up a little higher and they don't want to.

But I think that what we're seeing in this market is you do have to pay a little bit more to get people to do the kinds of jobs they used to be willing to do at just $9 an hour.

- Paying a little bit more, we're hearing about those inflationary pressures.

The Fed, oh, could have been a few months ago.

Jerome Powell mentioned inflation as being transitory.

Where are we right now?

How are you viewing this?

There are other economists who say, nope, we're heading towards a more permanent structure where inflation is gonna be baked in for how long?

I don't know.

So you could always use transitory depending on what your time values are.

How do you see things playing out here?

And how did we get here?

- Yeah, so remember that inflation is a percentage change.

So it's the, how we continue to see say prices going up year after year at five, six, 7%, or will we go back to seeing prices only going up around 2% a year.

If you look at the full range of data using things like the bond market, what you see is most people expect we're gonna go back to 2% inflation.

That's what the Fed's looking for when they say transitory, what they wanna see is that what they call inflation expectations remain anchored at 2%.

And what that means is when they look at how much people are willing to lend money for going out into the future, right?

So if I'm gonna get a mortgage and pay it back in 30 years, if I think inflation's gonna be five, six, 7%, I'm gonna have to charge eight, 9% interest on that mortgage in order to get paid back what I actually lent out in terms of purchasing power.

So we're not seeing any signs that people think that long-term inflation is gonna be rising.

So we see that now that inflation seems to be anchored at 2%.

So what's going on in the short run?

Well, there's two things going on and there's something we call supply side and there's demand side.

So demand side is whew, pandemics coming to an end, I wanna get out there and buy stuff that I wasn't buying a year ago.

Let's get that, let's go on a trip.

Let's rent a vacation house.

Let's buy that airfare and go to Florida.

People wanna be on the move and they wanna do things.

And that's pushing what we're seeing.

It's pushing the price of flights up, and this is just a surge in demand.

And we're seeing it for things we sort of expected like airfares.

We're also seeing it in retail sales.

I mean, people could have been online shopping, but we have an unprecedented rise in retail sales.

So people they're are out there, they're buying stuff and that's the demand side.

The supply side is companies are having a hard time getting inputs in.

It's not just one supply side factor might be labor is more expensive, but that's not what's pushing up the price of say used cars, what's pushing up the price of used cars is they can't get in all the parts for new cars, so there's a shortage of new cars.

And then that's increasing demand for used cars and that's pushing up the price for used cars as well as the price for new cars.

So those affects should be pretty transitory.

I think it was only a year ago we were talking about not being able to get masks, toilet, paper, other personal protective equipment.

Now you can get a hand sanitizer, all that stuff, it's plentiful and it's cheap again.

I remember paying about six or seven times for hand sanitizer about a year and a half ago, compared to what I just paid a couple of days ago.

That's because they had to figure out that the world needed more hand sanitizer and had to make more.

Those things are gonna clear itself up.

And so that's the transitory that they're talking about.

In the demand side, people will also come down, they'll have gone and seen their grand kids.

So they won't take, their demand will then go back to what kind of demand they used to have, maybe one or two trips a year, or people will have gotten out and sort of, they will have bought that used car, right?

We're gonna see that demand start to calm itself down and we're gonna see supply start to increase.

So that's why we expect inflation to be a temporary rise.

I think the thing that economists say is you never know, right?

Because what happens with inflation is inflation is really all about inflation expectations.

So if your viewers, if you right now believe in your heart inflation is gonna continue to rise at really high rates, you're gonna start to act as if inflation is gonna be going up at really high rates for years in the future.

And that will change your behavior in a way that will create inflation to go up at really high rates for years in the future.

So this is hard to stomach, but long run inflation is all about believing that we will have 2% inflation year after year in the long run.

So I would urge you to keep believing.

- The self fulfilling prophecy we don't wanna see.

- It's a self fulfilling prophecy.

- We're currently dealing with this more contagious variant, this delta variant, and then there's a lambda variant as well.

As an economist, are you tracking this as well and looking back at where we were 18 plus some months ago to figure out where we could potentially be again, how do you view this?

- Yeah, so I mean, the virus drives the economics.

That's what I've said since this began.

That's what many other economists have said.

The virus drives the economics.

So if the delta variant starts to spread, we're gonna see economic effects, but they are gonna be different from where they were 18 months ago.

A big difference is a lot of people are vaccinated.

It's also not a random half of the population that's vaccinated, it's the people who took the greatest precautions to avoid getting COVID in the first place.

So what caused so much of the economy to grind to a halt was not the stay at home orders, it was people saying, I don't wanna get COVID and I'm not going out of my house.

I'm not going to a restaurant whether it's open or not, I'm not gonna go into the grocery store, I'm gonna click and collect.

People made the individual choice to protect themselves.

The people who are most likely to make those individual choices to protect themselves have also now gotten vaccinated.

So the people who are most likely to get COVID are most likely to just keep on living their lives until they get sick.

So there will be an effect because large numbers of people getting sick, they won't be able to go to work, they will clog up the hospitals, they'll potentially have long run health consequences.

All of that will be an economic drag, but I think the bigger, it won't be like it was 18 months ago because the vaccinated people might take more precautions, they're probably not gonna take as many precautions as they took 18 months ago.

So I think how big the economic effect will be, is really gonna depend on how prevalent those breakthrough cases are and how many precautions vaccinated people take to avoid a breakthrough case.

- But now we have employers reassessing once again what they're going to do.

Now granted technologies, we've learned quite a bit about that, you've got some companies are saying, yeah, stay at home two days, come in three or three, two, vice versa.

We are seeing a change in the way we operate.

- Right, I think the challenge for companies is if you bring people back into the office and somebody works in that office building has been on the floor in the elevator and they have COVID, you've got a lot of potential sick employees.

The responsible thing is to not have anybody come in after they've been a close contact like that for two weeks.

So you're gonna be constantly shutting your office down and then reopening it if you are allowing unvaccinated people in.

So I think a lot of companies are trying to figure out, do they just keep people at home and stay out of the very complicated vaccination politics or do they draw a line in the sand like some companies have already done and said to be in the office, you're gonna have to have a vaccine because if they're bringing people, only people who are vaccinated into the office, the likelihood that they have that kind of outbreak where they have to shut down is just much lower.

- How was this last recession different from anything else?

I mean, we went from 2008 to this recession and it's almost like you think, eh, one recession is the same as the last.

Clearly they're not.

- No, every recession is very different, right?

It's like unhappy families.

They're all very unique in their own way.

So if you think about this last recession, the COVID, the pandemic driven recession, we had people voluntarily not buying things.

And that in a way that was much deeper than just financial concerns.

So normally in a recession, people cut back a little, but they're cutting back because of financial concerns.

I could get laid off.

Here we had people cutting back because of health concerns.

That changed the mix of goods that they bought.

Normally, what we see is the goods producing sector gets hits hardest in a recession.

In this recession, it was our first ever where the majority of jobs lost thrown in the service sector.

So it was a service sector-led recession.

And that's because what was driving people was not wanting to get COVID.

So they didn't go out for services.

So people, if it's a normal recession and you think I could get laid off, you don't usually cut back on getting your hair cut, but you might postpone buying a deep freezer because you don't really need it.

You've been doing okay without it.

You could lose your job, that's a big purchase.

The exact opposite happened with this past pandemic.

People stopped getting their hair cut and they thought I need to stockpile.

I better buy a deep freezer, right?

And so that is a metaphor, but I think it really gives you a good insight into what does it mean for us to stop buying services and to continue to buy, maybe even increase the amount of goods that we're buying.

So that's very different.

It's different in terms of bringing people back to work.

And I think the second thing that's really different is this, perhaps the biggest sort of sectoral realignment, like real change in the way that we consume and we work, right?

We had a big technology shock.

I don't know about you, but I hated using Zoom.

I never did this video chat stuff.

I had a publisher who always wanted to chat with me on Zoom.

And I was like, nah, just a phone.

And then I can go.

And now, I know I can toggle between every video platform out there, right?

So it changed our behavior in a way that's gonna permanently affect what we do.

And as you already mentioned, there's a lot of companies that were like, oh, actually people are more productive at home.

That's interesting.

Now, how do we figure out how to get the benefits of higher productivity at home and the benefits of people being able to collaborate with each other?

And so that's why I think companies are trying to figure out the hybrid model.

It's like, what we wanna do is come together and collaborate and get all these ideas flowing and then go apart and do our work.

And I think that's gonna be a new work model that really comes out of this.

That's very, in a normal recession we see a lot of what we call creative destruction, but I think this was the biggest push in that direction I've ever seen.

- Dr. Betsey Stevenson, professor of economics at the University of Michigan.

Thank you so much.

- It was great talking with you, thank you.

- Thank you.

And thank you for joining us, we'll see you again soon.

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