FedListens: New England Perspectives on Fed Policymaking (Part 2)

I’m a senior economist here at the Boston Fed in the research department and I’m really excited about today’s event because actually a lot of the research that I do is on Monetary policy and thinking about the objectives of central banks and how we should achieve those objectives So it’s very interesting to hear from the community What you all think about these issues? so first I’d like to just very briefly introduce our panelists and then I’ll Give them some time to talk a little bit more about their backgrounds and experiences. So First here on my left. We have Joanne Chang who’s the owner of Flour Bakery and Myers and Chang restaurant Then we have Michael Tomasi who’s the president and CEO of a key rounds? Next to him we have mark Erlich who’s worth time fellow currently at the Harvard Law School and Lastly we have Peter Foreman who is president and CEO of the South Shore Chamber of Commerce So I’m gonna turn it over to Joanne to say a few more words about herself Good morning. I’m excited to be here today that’s basically all there is to say that I own flower and Myers & Chang along with my husband and we’ve been running these businesses for about 20 years and we have about 440 employees Good morning. I’m glad to be here as well Michael Tomas, the president CEO of a key rounds we do we were to advance manufacturer located in Avon, Mass We employ 75 people. We do contract precision machining which means we make shafts pins and valves for a variety of industries We make a shap at 80% of the world’s flu vaccine is manufactured through we made the top of the freedom trail signs And we make parts for medical defense robotics an honor on right here, Massachusetts Morning, my name is Mark Erlich. I’m actually a carpenter by trade and for 25 years I was a Knopf Union officer from 1992 until 2017 the last 12 of which I was the head of New England regional council of carpenters a 20,000 member Organization covering the six states of New England during that time. I’m also a writer and I’ve written two books and many articles on Labor and politics and I am now a fellow at the Harvard labor and work-life program Looking at the issues of payroll fraud the underground economy and wage theft which is a unfortunately chronic problem Peter Forman South Shore Chamber of Commerce for a Regional Chamber of Commerce covering about 25 communities between Cape Cod Canal and Boston along the route 3/4 1,300 members almost all small businesses and we have currently in the last couple of years been heavily involved in a large long term project looking at the economic competitiveness of the region and how we promote regional economic growth most recently being involved in the housing issues Ok great, so we’re going to basically go through some of the same topics and questions that were discussed in the previous panel so first, I’d like to start with a question about The tight labor market, so the unemployment rate nationally, is that three point six percent So why that measured that’s one measure showing that labor markets are very tight right now So I’d like to ask the panelists about the benefits of the labor market being this tight Are there benefits an even tighter labor market? and do you see any cost of such tight labor markets in addition to that just Bouncing off some of the ideas we heard in the last panel I’m wondering also whether you think labor markets are truly its high we heard a lot in the previous panel about Not just the number of jobs, but the quality of jobs so I’d like to I think would be interesting to hear your thoughts on that as well as the issue of whether the tight labor markets are really feeding into Better wages for workers and also higher prices for consumers potentially. So let’s just start with Joanne here We are definitely seeing the effect of a tight labor market over the last I would say 3 to 4 years It’s been extremely competitive in the restaurant business in terms of benefits of a tight labor market I honestly as an employer. It’s It’s hard for me to say that there are a ton of benefits But if I look from a bigger picture, I think it’s great that we are now being Encouraged slash forced to raise our wages to be competitive the restaurant business is typically, you know, it’s on the the minimum wage level of Employment for our teams and it’s been very very challenging So we have been over the last three or four years. We’ve raised our minimum Twice and we’re gonna raise it again in the next In the next month or so So from that perspective, I think it’s a great thing that the labor markets are tight. It allows for people to To bring more home But then again from my perspective it gets really hard because we have such a hard time finding people It does make us reconsider whether or not we should keep growing at the pace that we’ve been growing at So here an article in my office from 1979 It’s titled find me a few good men, and my dad was quoted at the time because he was struggling to find help So we’ve been in this for 40 years looking for talent, unfortunately in our industry We’re finding a paradigm of dark dirty oily grungy and it’s the exact opposite of that. It’s very well at air conditioned computerized equipment very sophisticated machines so We’re definitely feeling the effects but we felt that for a long time and we’re starting to turn that with a lot of the outreach That we’ve done but a tight labor market as an owner is not the best thing as a team member It’s it’s good for them. They can command higher wages but we’ve always paid above average wages and we’ve had to adjust our pay scale similar to Joey and especially in the lower end we we employ voc tech students co-op kids and juniors and seniors in high school and the Competitiveness to attract them now is becoming a bidding war We always paid 50 cents to a dollar above minimum wage for a junior in high school because we never wanted to pay minimum wage but now they’re commanding two or three dollars about minimum wage, and these are kids that you know, I’ve had some training but they really come on the job to learn. So that’s the type of Market, we’re experiencing. So what is impacting our wage scale? and we’re addressing that the challenge we have is our customers don’t want to pay us less not more so Robotics, there was a comment in the prior panel about robotics replacing jobs. I caution people to rethink that Robotics will help companies grow and prosper, but they’re not gonna replace didn’t recreate jobs to new jobs five and ten years from now that that we don’t know we’re gonna hire So those are some of my comments regarding the current tight labor market Well, I guess I would start by just looking at the human aspect as opposed to the numbers There’s an old saying that the best social program is a job and I fully believe that And I think that to the degree that there was a low unemployment rate in this society. That is unequivocally a good thing both in terms of economically and in terms of people’s sense of self-respect self-worth and all the things that go on with having some sense of employment having said that I think That the unemployment figure is mask some underlying Realities that are that are going on. The one is that there has been A parallel growth in terms of economic development of the underground economy of people being paid off the books Cash compensation which obviously is not reflected in the unemployment figures because by its very nature it’s unreported work And that has the effect of suppressing wages So it is it is primarily in the immigrant communities and to the degree that people are paying cash and you know not paying their their legal obligations in terms of taxes and insurance it means That the labor costs are reduced for the employer and it has therefore the the the of holding down wages for everybody in that particular industry that’s certainly been the case in construction the industry that That I come out of the second thing has to do with Jenny’s questions about yes, there are jobs Are they good jobs other jobs with benefits? And you know all the data shows that Certainly from the 80s forward that with the whole question the fishery of the economy that the kinds of jobs that are being created Increasingly are have fewer benefits the Percentage of people covered by the fine pension plans has gone down from something like thirty five percent to fifteen percent just where they have held whether they have health insurance retirement security and With the rise of the gig economy hmm Where you’re seeing a more and more people classified as quote unquote independent contractors as opposed to employees and therefore not having the benefits of The sort of the legal status of being an employee and the protections and having to take care of whatever Issues around benefits on their own the obligation Falls to them That means that those jobs again. I would not characterize particularly as good job So I think there’s we should have a little bit of skepticism and caution about That this is all you know Nirvana that we’ve achieved with the low unemployment rate It’s I mean it is again unequivocally a good thing And from my perspective with perhaps the major social public policy issue in the society the growing income and wealth gap To the degree that there are tight labor markets. It does allow for people to negotiate for for better wages As both Mike and Joanna have said and I think to the degree that would that anything that is out there. That is narrowing The income and wealth gap in the society is a very positive and healthy corrective So increasingly I’m hearing from my members their concern about workforce you know, I think that roughly equates with the tight labor market, but we’re a lot of things that Come into the workforce supply more than the aggregate labor numbers What we’re seeing in the suburbs? at least in my area as much as a type of labor market is an even tighter housing market and that’s creating a workforce Challenge where companies are now thinking about where they relocate in order to hopefully Attract talent particularly out of Boston so they have to be concerned about the commute. This is particularly true in service industries where People are driving longer distance. So a lot of our workforce in Service industry is now coming from Rhode Island higher skill might be coming from the Boston Market but employers are now increasingly looking at since people can’t Having trouble with housing. How do they move them into that? Market, but they’re also seeing some other underlying Changes in Workforce Drivers that might help them. I think some of that is training and Where they get it and Mike I think will probably be speaking quite a bit about the training gap, but also the changes in ambition and lifestyle choices of younger workers coming along and I think that’s causing some tightening and Contraction of available workforce for a lot of employers because they’re not quite matching What some of the lifestyle choices may be of potential workers? Okay, great. Thank you So, um, we talked a little bit just now about how the tight labor markets are impacting basically forcing companies to pay higher wages and this will eventually Feed into prices and inflation. So one question that we have is would it matter to your businesses in the long run if Were a little bit lower than it is now say just 0% So price is really stable not growing at all Versus somewhere closer to the that’s target of 2% versus higher inflation rate of something like 4% So we did hear from a previous panelists that at least for some consumers At low levels of inflation. They want 2 or 3% the difference. Isn’t that big? Is that true for you, too? And if it is at what level of inflation would it really change the way you have to do your business in the long run? Well for us as I said because we’re We are raising our wages and similar to what Michael said at a certain point We will have to raise our prices too So while we might not be seeing inflation from our vendors to buy our flour or bacon or whatever We are seeing such strong wage pressure that we are slowly starting to increase our prices and it’s something that I’ve been watching for the last you know three or four years since we’ve been struggling with this labor market I Feel like you know, we’re fortunate we have you know 8 locations in Boston and Cambridge and a restaurant that are all pretty strong but I I don’t know how much longer All of the small business is at least from a restaurant perspective can continue at the price level They’re at I think everybody’s starting to see their profit margins get smaller and smaller we’re Robust enough that we can we can carry it for a while But you know, it’s a certain point we too are starting to see it gets so small that we have to increase our prices and I feel like Everybody in the restaurant business is holding our collective breath waiting to see who can last the longest, you know We just increased our wages a little bit. We’re gonna do it again And I feel like my my peers are all we’re looking at each other Like how much are you paying a sous chef? How much are you paying a line cook and everybody’s like I can’t believe you can afford that we all say that to each other and we’re all just crossing our fingers somebody’s gonna Go out of business I mean not that we want anybody to go out of business But then that helps with the labor market we have all of those cooks that we can then entice to come to us But it’s kind of this thing where we’re we’re all holding our prices for as long as possible But I really feel like it’s it just happened where I don’t think it’s gonna be overnight Everybody’s gonna double their prices, but it’s inevitable. We cannot continue Hey, I mean the minimum wage in Massachusetts is 12 which is amazing. But now everybody wants 15 Also amazing if we were to raise our prices to 15 hour, I mean our wages to 15 our prices would get so high that we wouldn’t be able to serve as many people as we do and so we I Feel like we play this dance Pretty much every time the you know, we’ve been around for about 20 years. So every time the economy gets this way There’s this collective holding of our breath to figure out who can last the longest Echo Julian’s comments to a certain extent we I believe in general low inflation is good 1 2 percent 3 maybe start to get to 4 to 5, then it becomes a concern right? We have an interesting dynamic in our industry where there is a reshoring Manufacturing Renaissance taking place so work is coming back. We don’t have the base to support it. But colocation is key so it’s kind of allowing us for the first time and maybe 20 years to look at our pricing structure and It can choose certain opportunities to increase price because our customers may not have all the opportunities to move work Like they’ve had the past because the supply chain has been whittled away Unfortunately due to some people just leaving the industry because I didn’t think was viable but I think overall I think keeping a 1 or 2% inflation is Working from that standpoint, but the dynamics are changing Well putting on I guess my head is someone in the construction industry In All industries are sensitive to interest rate fluctuations. I think construction perhaps almost more than any our Peaks are larger than most in our valleys are larger than most and during the Great Recession of 2007 2009 it was not a recession in construction it was a depression that was 40 percent unemployment for several years and a lot of misery that goes along with Entailed with you know, that level of high level of unemployed unemployment now obviously there’s a boom it’s a good thing and the issue of inflation I think as long as it stays relatively low and whether it’s a quarter point here a quarter point there up or down I think is Is not that critical obviously, it impacts mortgages and it impacts construction loans so but the the underlying drivers of the boom that we’re now seeing in construction, I don’t think is really based on I mean it may be low interest rates may be unnecessary but not a sufficient condition in the sense that the underlying economic development issues in there really strong industries that we have in New England in terms of Health care and education and finance and hospitality and all the things that are really better Blossoming that’s what’s driving, you know the demand for construction and I don’t think it’ll really be impacted that significantly by a quarter point or a half point interest rate fluctuation if those if that changes well Then that will look different or if the interest rates go up markedly, and I think as you know, as Peter said the issue of housing the demand is The demand it’s there and it’s not a function of the interest rates And the supply has simply just not kept up with the demand for housing and it’s becoming increasingly Unaffordable for just about anybody but certainly for for you know people in the workforce. I Don’t know how close the relationship is now between Inflation rates or interest rates and labor supply. I think there’s been so much change in the economy and business models and lifestyle choices that some Rise in interest rates probably does not ease the labor supply And all the workforce supply With most of our businesses on the social economy. I’m not sure while it would affect Mortgage rates That’s not the largest driver in the housing cost. The high housing costs is driven by market more than Housing or even the land cost? The market demand is just putting that housing out of reach for so many people that a lot of our companies are working for There might be many industries where The the ripple effect of higher interest rates starts squeezing the margin because of supply chain issues on Products they’re either looking to buy Towards their process or what services or products they’re selling, but that would be a case-by-case situation. I think Okay, so I think we already actually started moving a little bit into the next question about about interest rates So the Fed tries to achieve its dual mandate of maximum employment stable employment and the inflation target of 2% but the tool that we use is to Raise or lower these interest rates. So I’m curious about what your thoughts are on kind of the direct costs and benefits of either higher or lower interest rates on your business, but also thinking about how that might affect the Customer, you know come to your businesses. I Will admit that my grasp of economics in general is Not as robust as I wish it were sitting here in front of everybody talking about interest rates I have a very I really appreciated Jeff’s chart because I know that sort of on some level but seeing it again helps So when I you know to try to answer this question low interest rates, and how does that affect my business? I mean, I think the way in which I see it affect My business is that when there are low interest rates It seems that developers all want to build lots of things and so the more buildings that are out there the more people want to put bakeries and restaurants in their ground floor, so it’s great in that there’s a lot of supply my you know Freshman class of economics said the higher supply then the lower the price or something like that But I haven’t seen that it seems like there’s a lot of supply of developers who want to put in bakeries and restaurants So you would think that then it would be a really competitive market and I could name my price But I have actually found it to be the opposite back in 2007 when? Interest rates. I think we’re high or something was going on in the inter economy wasn’t strong But I found it really easy to find spaces and that’s when we decided to open both the second flower bakery and Myers and Chang We got amazing real estate deals Now we have opened a bunch more but every deal since has been increasingly more competitive Less favorable and my favor and more favorable on the developers side and Currently right now. It’s the most competitive I’ve ever seen in that there’s tons of spaces, but they’re all commanding really really high prices which is Leading me to feel like maybe we shouldn’t expand as quickly as we have in the past because it’s starting to get So expensive it doesn’t make sense. So I don’t really know why that is I feel like if the interest rates are high or low and everybody’s building a lot Then I should be able to find lots of spaces at a decent price But it seems like there are so many spaces out there that I’m not sure. I’m not sure why it is I know there’s there’s developers here who might be able to help me answer that question But it just seems like the price is now that for real estate for me are Higher than I’ve ever seen which makes it hard for us to consider growing So the interest rate environment plays and a couple of areas for me and on the business side Up until 2013 we were debt-free But we were looking at a possible expansion not only facility but equipment And obviously having low interest rates helped making make that decision and moved us forward as a company So an influx of investment there and that’s a positive we also as a family owned some land and Back in 99 we developed a property when rates were low and we’re in a variable rate industrial development bond was very attractive for 15 years and We recently completed a building across the street Ooh burn, and again, we’re able to go to mass development for industrial development bond and borrow it very attractive rate So from an investment standpoint, it’s good and speaking for the handful of employees that are nearing retirement At our company, I don’t think they’re so enthused with low rates They’d like to have a very tiring and talking to some friends that are retired recently and have counted on higher rates They’re not so happy as either but from a business standpoint and from a team standpoint, you know wearing two hats as an owner But also you want to care for your team and have your team have healthy lives and be able to afford houses and cars Low interest rates play play to that advantage for them So Mike’s Mike’s point about the Those who are either at or close to retirement certainly a higher interest rate environment helps with savings and in to the degree that My members have are part of a defined benefit pension plan The returns on assets eternal investment tends to be held down by low by low interest rates environment And then again just people’s personal savings the same thing but again, but I I said in the larger Context I think that the art industry is is It’s more resilient and more effective and more likely to continue to grow in a low interest rate environment. And so I’m very simple, you know, very supportive of that. I you know, I would say one of the other things that that happens in the real estate market, which is a little Which is I think a relatively new phenomenon It’s a monetary policy also has an impact on the dollar in the exchange rate and to the degree that we have a strong dollar It’s also attracting foreign money Into real estate is seen as one of the assets that people want to invest in in servicing Chinese and Russian and Saudi money in Boston certainly but you know in all the major cities all over the country Because that has become a valuable asset and and Joanne to your point that that’s one of the time actually continues to drive up prices Regardless, but you know, I would say That there’s a study that was done by a gentleman who was a former b ra economist Who? Looked at the various component pieces of development costs in both New York City and Boston and contrary to what the you know, everybody says all like You know labor costs we’ve gone through the roof and this and that it’s actually the costs that have increased that a significant factor faster than inflation our land and Financing cost financing is much more complicated than it used to be in just simply the cost of putting together a deal Is much more expensive? Labor itself, and I’m just talking about labor itself I’m not talking about the profit margins which have gone out in this boom But labor itself and materials have not even gone up as fast as inflation and I think that’s a myth and a misconception that Is very harmful to I think the folks who work for a living in the in the industry It’s not that suddenly construction workers are you know, the dollars are falling out of their pockets because everything’s so good Yes, it is steady employment as a wonderful thing It still remains the case that even in a boom like this. The average construction worker does not work a 2,000 Our year because of weather because of inclement because of churn from one job to another and 14 1500 hours is actually the average so it went well the hourly wage is high when you multiply that times by the number of hours worked It’s actually not that different from a from a manufacturing worker salary So for a typical small business night, I mean really small business not the Government standard of 500 or fewer employees but the startup business the career changer who’s given up on the boston commute or big corporations and Working on their own starting their own business maybe a few employees for most of them I think Access to capital is a lot more important than the cost of capital Because they’re not necessarily looking at large sums of money nor are they assuming? longer periods of time and so the challenge is that a lot of the startup businesses have I think if they’re of some size and looking at a longer term engagement or acquisition of assets I think banking regulations Still have a big larger effect on their access to capital than what the interest rate is going to be I think for a lot of the career changers, who are simply looking to Do something in their? post retirement career It is I think finding some other Options to capital they may not be looking for a bank loan But they’re looking at how they’re gonna access that home equity and Now 401ks so that’s a mixed bag because if you’re Inflation is going up your 401k in some cases. You might get getting higher returns And that may not be so bad, but I think opening up other Trying to open up as many Avenues for access is important for people whether it’s the bank loan or trying to save people from going its the prior panel touched on the payday advance Companies or whatever you have to do to to get those little pockets of cash to to get started It’s a bigger concern than interest rates Okay, so I think that’s actually a nice segue into the next topic I wanted to touch on which is so the the feds dual mandate officially is To have maximum sustainable employment and maintain low and stable inflation but what do you all think are some other goals that the Fed should try to achieve and What the Fed be able to achieve these goals Using the tools that we have now which on the monetary policy side or predominantly? Interest rate tools that allow us to try to control the flow of credit So I think I did hear a few things mentioned earlier that that would potentially Speak to other goals such as housing availability and things like that But do you all think there are some other goals that we should look at? The one goal that I would suggest which is less based on tools or policy but I think the gentleman there mentioned it earlier in the other panel, which is educating the public just in general about what What the Fed does what the economy is? What are interest rates? I mean these questions that I think sometimes we all get in our worlds and we think that everybody knows our language I think that if you ask the majority of Americans a lot of people are pretty they have pretty basic knowledge of the economy I mean, maybe you take economics when you’re in high school But you don’t have to take it when you’re in college if you go to college and so if you think about What the average? person who just goes off into the world and then it needs to find a job and pay taxes and find an apartment and pay their bills, but they don’t necessarily know all of the things that we’re talking about, and I think if they are if people have more education about what how the economy works that might better inform them in terms of decisions they make which might then better inform the Fed in terms of how to use the tools that they have at their disposal to help the economy Start with Congress About second, Jim Lance comments I think the outreach and advocacy that the feds doing and starting today and and has actually done in other areas as well And specifically Workforce Development. I know Christianity’s here and and they have some efforts to get involved in areas where there’s a skills gap I mean that there’s a real serious issue this silver tsunami as it’s called There’s an aging out of the workforce and manufacturing over the next ten years is going to be about three and half million jobs available and They expect two million to go unfilled. That’s a serious issue. So whatever Light the Fed could help shed. I’m selfish. She’d promoting advanced manufacturing, but there’s some tremendous careers in our industry not just in the machining in but the engineering and the quality and the warehousing and We’re to the point now where I’ve actually connected with Cheryl Tompkins, and I’m going to the jail on Thursday He’s been to my company already and we’re gonna see if there’s an opportunity for us to link The incarcerated kids that are going through some stem training to future careers in manufacturing. So That were able to do this and make it work We’d like to publicize that so other companies can kind of join on but we’ve been very unconventional our approach to address This unemployment issue, which is not going away in our industry in particular for a long time That’s that’s that’s a very novel innovative approach good for you You know the Fed has done I think it really sort of has maintained an even keel in a very volatile economy and incredibly volatile political society that we live in The feds tools unfortunately are somewhat limited yet you are responsible for monetary policy But the flip side of that fiscal policy is You know gentleman here said of Congress. I mean, we have a dysfunctional federal in terms of all of the needs that the our society Has in terms of investing in infrastructure in terms of dealing with the public policy around economic inequality. All those massive issues That are beyond the scope of what the Fed can do You know what? And I think it’s in the context of dysfunction. The feds role has been actually elevated because you guys have continued to sort of just keep on going and And do what needs to be done to sort of stabilize and and the economy But but that’s in you know until we have some sort of fiscal Policy that invests in education and infrastructure and all the things that we need It’s hard to it’s hard to imagine how how effective the tools that you have can really be I would just agree with what everybody else has said from the first panel and from Joanna Mike about the issue of education the issue of research You know the color of wealth study that you did was enormous ly influential and I would just encourage you to Not only keep that data and that information that research inside this beautiful building but to make sure that it gets out into the public and into the you know civic dialogue because I think you have a Lot of resources and a lot to contribute on both the research and the education front so I would iterate at the national level anything that can be done at the feds end in terms of Facilitating capital access and flow with banking regulations Is helpful Certainly the education level to break up this mindset that we all have particularly It seems down in Washington that the economy is measured by the stock market in the daily return and if it’s up or down it’s it’s just Awful and the Federal Reserve I think plays a big role in that but locally What the the feds do is so the other regional? branches do things similar as you do Eric, but the research And information that you have in that ability to shape issues around regional competitive advantages in terms of building local and regional economies Can be very powerful. I think we all tend to get caught up into such macro assessments of what the economy is like or what the future is gonna be based on national or sometimes even international trends and yet New England is a neighborhood, you know? It’s a small subset of a much larger economy, and we have our own competitive advantages Even if we think we’re looking a little weaker at times so the research work That the Fed does and the forums you have and the publications That help shape some of the direction that Policy makers nonprofits community leaders And can work on building a consensus as to where we have Strengths and move in that direction I think are incredibly powerful Okay, so before turning it over to Close with a question about How you feel over the past decade the Fed has done at achieving its true goals and just more in general the type of environment that’s been here for the past decade for the communities that you operate in and also if you’d like to say a few words about Challenges that you foresee going forward or if other closing thoughts you have on the topics that we talks about today For the last 10 years from my perspective. The the Fed has been really good The economy is really strong and our business is growing and it’s you know, it all seems very very positive in terms of challenges The the tight labor market is really hard and one thing that I failed to mention earlier is that one thing that we’re seeing is that we’ve you know, We’re slowly starting to raise our internal minimum in terms of what we pay dishwashers and line cooks, etc And we’ve gotten to this point where for what should be really skilled bakers and cooks we’re paying a competitive wage and then but we are getting people who are not trained but we need them we need anybody and so what we’re seeing is that We used to you know, pay a pretty good wage for an opening Baker position and we took only skilled Baker’s because it’s a really important part of running the bakery and now we’ll basically take anybody who Expresses interest in maybe coming to work at the bakery and so we see a lower productivity like the the amount that I can expect somebody who’s just Walking in off the street who wants to bake is you know sixty percent of what I can expect from somebody who’s been trained and so having the the labor market be so tight for us has resulted in Unfortunately lower expectations of what we can get from our teams which then results in Lower productivity in terms of what we can offer to our guests Again I’ll agree with Joanne I think the feds done a great job the last ten years with the economy in general Our biggest challenges is labor and the title labor, but the market is the more challenging it is and we’ve experienced similar Scenarios that Julian’s describing as well with with wages and attracting talent Soft skills we talked about technical skills skills gap but soft skills is a big part of that You know we have core values that Act grants gratitude excellence team first initiative and trust and at the end of the day if you have those five things released understanding how to behave Well will train you well give you the technical skill and we’re challenged on on just a soft skill front a final comment In general and on the trip. This is an area that that can help tackle or not, but we talk about business and Unfortunately when people hear the word business They think of the mega corporations with billion dollars in the bank and why can’t they treat their employees better? I think in the state don’t quote me on this, but I’m pretty accurate that 70% or so of companies in Massachusetts are a hundred employees alas There are 90 percent and 70 or 20 or less something like that We’re struggling to make payroll every week. Right we’re paying off that we we have to pay fair above fair We have to give incredible benefits. We have a garden on site at our facility. We have a fitness center We put solar on the roof. We’re trying to Differentiate ourselves and become an employer of choice to attract the Millennials and have that corporate responsibility But that comes at a cost and if our customers don’t want to pay us more we’ve got to drive that through efficiency And we need talent to do that So if there’s some way the Fed can look at business and not only just generalize it But talk about small business in a bit of a different way That we’re willing to come to the table and then roll up our sleeves and do all this work to help at the general public and awareness and employment whatnot, but when it comes to money and Contributors, which a lot of people look for we can’t do that But we can give you some sweat equity into that and make that differentiation where we need We need the big companies leading the charge, but you need the small businesses engaged as well In response to your question I I guess I should repeat what I said before which is I think the Fed over since in the wake of the recession Has had this kind of slow but steady approach to the economy. That’s been very stabilizing again in the context of a pretty unstable larger political dynamic that we have in our country where Which has been in some ways I think the role the Fed has been to unite whereas the sort of political culture is to divide and But the prowl again of this repeat what I said before but your tools are limited to monetary policy and so the real challenge I think in the larger society is How we’re gonna sort of move forward in a way that that we need to meet all the challenges that were that we’re facing Going forward one of the advantages I would say about the tight labor market And this speaks, so again both Mike and Joe and I think from a slightly different perspective is that in the construction industry it is allowed for a significant transformation of diversity in the workforce To the degree that I mean that’s been a conscious choice by by the industry by the unions by the employers Recognizing that that historically has been was a problem in construction And it’s I in my I haven’t seen anything change so dramatically in my lifetime as As the level of diversity in construction and that’s been made possible by the fact that there’s that this tight labor market and there’s opportunities For people and there’s opportunity for jobs, and these are good jobs And you know, it’s interesting whenever the carpet is Union. We used to open our doors for our periodic Orientations for the people who want to consider apprenticeship. We never had a problem finding people. I mean it Didn’t look like a tight labor market to us because the opportunity to sort of have a life altering career Was so attractive that some of the people who might otherwise have gone to flower Decide sorry join Decide you know decided to go into the construction and Many women of color. I mean it’s been really exciting to see that so there are all sorts of ancillary benefits I think that come along with a tight labor market that that there might not be immediately obvious. I Will say that we we do lose people so the construction industry we do we really do So it’s been a good 10-year run to the extent the Federal Reserve can Take some credit for that and point to it. I think you you’ve done a Great job I do wonder about What will happen in the future at some point I don’t think it’s 2020 when the economy collapses or stops to contract but At some point it’s going to turn And I think the the bigger question is the one you you started asking yourself for This session at the the beginning when you framed it is Are you going to have enough of a toolkit in the future to stimulate a downturn? You’re gonna be able to answer that much better than I think any of us on the panel can And so that would get us to where you are in the present and perceptions and from the outside As a keen observer of politics and the economy It looks to me like the Fed has Gotten a little timid And a little defensive in response to national attacks in criticism And I wonder if that Has undermined a little bit of your role in providing that continuity instability removed from the political climate and is the Fed as guilty as our national policymakers in local policymakers in wanting to keep the 10-year run continuing it at whatever cost and Not looking ahead to how you’re going to get us out of an eventual dip Great so, I think these were a lot of good points and hopefully will stimulate some conversation from the audience right now so Anyone who wants to ask a question of the panel members or give some thoughts on some of the topics we touched on today? Thank You Rene hurricane single-point partners Were a wealth management firm? The last time that I saw the wage inflation numbers, I think they were running around low the mid threes I think if you go back to the boom of the 90s, maybe even the expansion after 9/11 after oh – I think they were running probably in the mid force as kind of a normal right and so For the business operators here. Two questions one are you seeing? levels of staff turnover consistent with what you saw in those expansionary times in the late 90s and and in the early knots and if so Would it be fair to say that? We’re probably Or I should say if if you’re not seeing it Is it fair to say that there’s probably a lot more runway ahead Even though you know, we describe the labor market as tight. It’s all relative, right and so at 33.2% Wage inflation is that really is that really tight or is there more room here to run before you start seeing? significant Staff turnover and bringing in new untrained people and so forth. I Mean we we see a lot of staff turnover We always have I think just the nature of the restaurant business people come and they go most people Aren’t planning it to be their career so our challenge is always to take people who come to us planning to work part-time short term and try to Groom them and train them to make it into their like their their industry, I think For us we We struggle with staff leaving Nowadays because there are so many opportunities for them where they can make, you know The same wage and we people I mean we see people going into construction. I have the gig economy I have staff that leave because they want to drive for uber I have bakers who leave because they can go – You know encore and make twice what we can pay them. So there’s we’re definitely seeing a lot of staff turnover That is making it really challenging for us We’ve been pretty fortunate our turnover over the years has not been high We’re about four percent or so a little better now actually than in 10 of 20 years ago I Got from a business standpoint. We have more opportunity today than we’ve ever had We have more people coming to us looking to place work than we’ve ever had We can’t take advantage of it because we don’t have the people to do it and I’ll tell you as a business owner There’s nothing more troubling or frustrating than that. So we continue to look at technology not to replace people I will never replace a person with a robot or automation But we’re getting impacted by not only those two things machine learning machine monitoring 3d printing Big Data Some are mentioned about the jobs of the future. We may have to hire a data analyst which never in a million years I thought we’d be looking for so The runway for us seems pretty long because we’re entering LTS five and seven year LTS for aerospace work But that’s unheard of in our industry Correct growing and replacing our retiring technical talent I Kept bill Mayer Connecticut economic resource center. This isn’t really a question. It’s really more of just a comment When I applaud Federal Reserve for having a forum on small business And entrepreneurs and because as was pointed out in one of the statistics the country’s business is built on the backs of small business and it is vitally important and I think when we look at the macro Picture as the Federal Reserve, you know rightfully does Very often the loudest voices are the larger Corporations in terms of perhaps making policy and setting policy and they have a voice in the room. I’m sure and Arguably the louder voice or the most focused voice should be on the small businesses Anyone else I Talked Phillips again. I was wondering Any of you concerned about the trade war with China Either directly or indirectly and by directly. I mean obviously if you’re importing And I just heard China’s gonna slap sixty billion We call them terrorists. I guess they call taxes, right? That’s what keeps saying They’re not terrorists at taxes But wondering if you’re concerned about that either because your employees are gonna have to pay more for products That they, you know wouldn’t otherwise have to and they may delay now buying things Or if there’s a direct impact on the trade in terms of any kind of import/export issues It has a direct impact on us because we buy material overseas, so we’re paying a tariff we’re passing that we just passing that through we can’t absorb that I think the Concern is the uncertainty right where this is gonna end up You know, there is talk in our company about you know The China and the trade issues and tariffs and and how does it affect us as a company and you know right now we’re passing the price increase on Where it goes from there? I don’t know but there’s definitely concern about where may end up I’d be less concerned about trade policy with one country Be a little more concerned about trade policy generally and if you get into a a broad-based trade war of some type but with China in particular I think there’s probably more concern about intellectual property Insecurity and Technology theft then that we ought to be paying attention to then simply the the tariffs and trade Directly between the two countries But I would like to see More freer trade generally than some of the discussion we’ve had the last year or so So, yes Let me repeat that are any of you being impacted by the issues over immigration from the south We are directly impacted by the immigration that climate around immigration I have I have prep cooks and bread shapers and Bread mixers who have been detained who have been sent back who? Have then come back and I have teams of people who are just nervous Sometimes they don’t come to work because they hear something’s going to happen We’ve trained all the managers on what to do if somebody comes in from ice and how to deal with that So it’s something that you know, our staff is Probably 30% Latino 40% maybe so it’s definitely impacting us Is it contributing to product Oh, correct, correct. Yes It’s a huge issue in construction If you look at the the data if you basically south of the mason-dixon line the construction industry workforce is immigrant period About maybe maybe sixty somewhere depending on the state somewhere between 60 and 80 percent and half of that is undocumented so I have always scratched my head wondering all these people who are looking to build walls and and and eliminate borders about how they’re planning on getting work done because it’s a lot of the same people who were presumably industry leaders its but when I Opened my remarks about the question the tight labor market and I said that there’s some things that aren’t getting measured That’s one of them because a lot of that is the underground economy. A lot of it is cash compensation Its unreported so it’s not documented in in statistics with the Fed or any other Governmental agency deals with and it has a significant impact on suppressing wages If you just look over the history the recent history of immigration in the last twenty thirty years in various meatpacking and various industries that have gone that have had a huge influx of immigrant workers it has been associated with with a Very significant decline in wages and it has added to the dynamic event of inequality in this country. So You know, I wish there was a Rational policy around that to just like I wish you were around a whole lot of things that we don’t seem to be very rational about these days Okay, great, so I’d like to thank our panelists for a wonderful discussion, I think they all deserve a round of applause You

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