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down seven dollar sixty cents an ounce. Twelve thirty ten year Treasury up twenty thirty seconds with the yield of one point seven nine percent. And that's the Bloomberg Business Flash. This is taking stock the Fed in focus on Bloomberg Radio. This is taking stock on Bloomberg Radio. I'm Kathleen Hayes in San Francisco, door, Bloomberg News Bureau, Pim Fox, my co host back at Bloomberg World headquarters. We are both joined today by John Williams. He's President Federal Reserve Bank
of San Francisco. We talked him a lot about the state of the economy. Says it looks pretty good, particularly in the labor market, and yes, conditions may very well be in place for a June interest rate increase. But there's a big question hanging over the economy right now, and that is productivity. Productivity growth seems to have slow. That's a big determinant of how far and how fast the economy can grow. Also, wages, why aren't they rising when the labor market has been so strong? So to
talk about wage growth? What's driving at and what's not? Is Mary Daily? She is Associate director of Research at the San Francisco FED. And so Mary's nice to welcome you, to thank you, great to be here. So wage growth, how how do you look at wage growth? The fact that it has it is slowed. If you look at average hourly earnings are only up what by two point three year over and year with unemployment at five percent?
It's even at at four point nine? What has happened? So, like John, I'm a big believer in the Phillips curve. So I think, well, if unemployment should go, if unemployments at five, wage growth we should see acceleration as the unemployment rates fall in. What we've seen really is what we like to think of as a math problem more than a wage problem. And what do I mean by a math problem? Well, the wage growth is being held back by two forces. One force is really good news
for the labor market. The really good news is that a strong labor market is bringing back in workers who were sidelined by the recession. They were let go, they were lower skilled workers. They got let go in the recession. Now they're coming back in because the job prospects are brighter and they're getting an opportunity. But they come in at lower wages, and those lower wages pull down the average wage in the United States, and so that limits
wage growth. On the other side, we have workers who are the silver tsunami, if you will, and they're starting to retire. Those are workers who have higher or higher wages, higher skills on average. So we've got higher wage workers leaving the labor force, the silver tsunami. We have lower wage workers entering the labor force who are previously sidelined or they're just younger and they were in school. And
these two factors are holding down wage growth. It's somewhat giving us well and it's completely giving us a bit of a false signal, false signal on how healthy the labor market is. And it's not an idea that slow wage growth means we have unmeasured slack in the economy. It's really that slow wage growth is these compositional chance ages that are often h or I think of him as a good sign for the economy, Maria, You don't worry though that, um, there has been a hollowing out
of the middle part of the labor market. You could say it started twenty years ago when manufacturing companies started hiving off their their payroll functions and their accounting functions services jobs. Then you add in technology. So in the old end days, when my mom was a secretary many years ago, you know, you answered the phone, you type letters that there's a for for decades now, all kinds of jobs that have been eliminated by some big, big forces.
Are you concerned that that's going to continue to keep wage growth low because you've you've eliminated some of the higher paying jobs that would have pushed them higher. So one of the things that's really important to think about is this job polarization you just referenced, which is the hollowing out of middle class class jobs. Those are levels of wages, and when you think about wage growth, we find that wages grow at all levels of the distribution
of wages. So if you're a low wage worker, you still have three four percent wage growth when the economy is doing well, and so we wouldn't think this would slow wage growth, but this following out that you refer to. If you've been an economists as long as I have, you've been thinking about this issue a while. And what we've seen is that while we worry about it, each and every time that manufacturing gets replaced, steal industry gets replaced.
Now we're worrying about other types of manufacturing being replaced. We see new jobs forming, and the new jobs that form are also high skilled jobs. Oftentimes, it's not the case that we're just eliminating all high skill jobs replacing it with low skilled jobs. We have a rapid growth in high skilled jobs, and it's one of the things that we have to think about as a nation. It means continued investment in human capital and college is going
to be important to fill those high skilled jobs. Mary Daily talking about jobs, just want to point out I believe that you dropped out of high school at the age of fifteen and delivered donuts in order to support yourself. Correct, that is true, okay. I also noted that there is a Federal Reserved and Study, a survey that monitors the
financial and economic status of American consumers. They've been doing this since and that you ask this question about whether people would be able to come up with four dollars for some kind of unplanned financial emergency. The answers were not great, and I'm wondering if you could speak to the issue of the people who are dealing with being put out of work because of productivity gains from automation
and also from the increased use of robots. They don't pay taxes that they also don't cost a company retirement benefits as well. What's the future, Well, the future and my colleague John Fertile is going to talk about productivity in its future, But the future is that automation is going to continue. There's just it's an unstoppable force. And we've seen this for hundreds of years. That we replace individuals with new technologies that do things that we used
to have to do farming, grading steel. Now we're using robots to build cars. Those are just things that are going to happen. The The important thing is for individuals to respond to that and for the our economy to respond to that by ensuring that people have the skills to take on the next job. So we're seeing the shift in our economy towards more thinking and you see how you return on what we call softer skills, people working in teams, people being able to organize new processes.
So if you link it back to how should people respond, will invest in themselves to do to get the skills necessary to do these new jobs. But if you're thinking more about the I think you referenced earlier, a lot of people have trouble coming up with four hundred dollars. That's a level of economic insecurity that is present, whether
we have automation or not. It's really a reflection of the fact that many individuals at the lower end of the wage distribution, they're they're they're in a risky position of their one job loss away from being an unable to pay a bill or to meet some sort of an expense that they've got planned. So for those individuals, increasing their skill level, getting getting them into jobs that have more security, or if I any way to broad
their opportunity set is really important thing. So you know, uh, John Williams, you are an economist who, like so many economists, has this fun, creative side, and one of the things about you that black people don't know and until very interesting a profile recently was cured by the Wall Street Journal. I must say, uh, your your love for punk music and how you weave it into things. So I want to give you a kind of a at a left
field question. If you had to take one of your favorite songs and use it to depict this question, this this tension, right, productivity, labor market, what's going on? Can you think? Does anything come quickly to mind of what it would be. I'm trying to think of a good clash song that has to do with the productivity. It's so nothing really uh comes to mind. I think that that really what uh Mary's point that was absolutely right.
The issues we're talking about, our long term structural issues around shifts and technology productivity, uh, and what's key for our nation's success is really about investing our people. And that's not just college. I mean, Mary've mentioned college because that's hugely important, but we also know from studies that what happens before you even go to kindergarten has huge effects in your lifetime earnings, uh and your health and
all these other things. So, you know, I think for as a country, if we want to tackle a lot of these issues that were brought up in the last question, we really need to, uh, you know, really invest in our people from you know, basically from birth all the way through college and then and even further. But I will I will contemplate how to bring it, either Elvis or Elvis Costeller or the Clash into into this issue.
By the way, I will tell you that this punk a description is said that the Wall Street Journal that has gotten me a lot of emails, So this is not really the Clash and the el of Us were not punk. So this is now a whole sidebar of research about what exactly was the new wave punk and things like that. So that's something that you should be
looking forward to hearing more about. John Wiz, maybe you could just fun and I hate to sound like a broken record, but why don't you just raise interest rates to a point where people will incentivized in order to save money. I mean, you keep talking about this from a thirty thousand foot level, but I mean, if people can't come up with four dollars to meet an unplanned expense, what is the incentive to say that they're getting nothing in the bank and then you tell them, okay, go
buy risky your assets and then they lose their money. Well, I don't want them buy in risk your assets. So that let me make that absolutely clear. I think you know that this is the trade off we face with monetary policy. Uh. And I'm not making excuses, but you know we have a blunt instrument. Do we want interest rates to be higher or lower? With raised interest rates, that's probably gonna slow growth create you have fewer jobs created, more people who are living uh kind of in the
situation that Mary described about being at risk. A stronger economy Uh, well will help those people who get jobs or have more stability uh in the their economic lives. But you're absolutely right. These are big social issues that we need to think by one think Monterrey policy, either raising or lowing interest rates is going to fundamentally change
some of these issues. Well, thank you so much to Mary Delor's daily associate director of Research at the Federal Reserve Bank of San Francisco and the President of San Francisco Fed himself, John Williams, spending a very generous hour of his time with us today on Bloomberg Radio on Kathleen Hayes Long Pim Foxes is taking stock and yes this is Bloomberg Radio.