Related Links

• Flexible Work and Women's Participation
• On Remote Work, Markets Will Decide
• Technology-Enabled Disruption Conference
• Charting the Path of Interest Rates
• Richmond Fed Survey of Community College Outcomes
• Financing Rural Development

Transcript

Tim Sablik: My guest today is the Richmond Fed bank president, Tom Barkin. Tom, thanks for joining me today.

Tom Barkin: Let's have fun, Tim. Looking forward to it.

Sablik: I'm very excited to talk with you about a variety of national and local economic topics.

Before we get started, I wanted to let our listeners know that we're recording this conversation on September 3, before the FOMC September meeting and the release of the August job data.

As everybody probably is aware, economic data can move quickly. In particular, the post-pandemic recovery has been really hard to navigate and forecast, which is something that you've talked about in some recent speeches you've given this year. What are some ways that you've readjusted your thinking over the course of this recovery?

Barkin: I think the biggest thing to remember is that the decade before COVID was an unusually stable decade from an economic standpoint. GDP basically rose 2, 3 percent. Inflation basically rose 1.8 percent or 1.9 percent or 2 percent. We added jobs in every month in the 2010s.

So, I think we all got ourselves pretty comfortable with stable. If you then go to a pandemic economy, obviously unprecedented in any of our lifetimes, everything changed.

Think of the spending side. You had the shutdown economy, you had the goods surge, you had the vaccine surge. You had consumers with excess savings spending like drunken sailors. And then, of course, you've had two years of people forecasting a recession that hasn't yet happened.

Think about the employment market. Unemployment spiked all the way up to 15 percent. Participation dropped. You had this whole notion that people would never go back to work again. Then, you had the frenzy of two years ago where you had 3.4 percent unemployment. No one could find any workers. Then you had last year's supply surge, with both immigration increasing and labor force participation increasing.

And, of course, you know about inflation, which went from we couldn't find it to it being transitory to all of a sudden it [was] skyrocketing and then coming back down. So, the world changes, but the facts change too, and you just have to stay on top of what's going on.

I guess what I see today — and, of course, your listeners will tell me three weeks from now if it's still the case — is consumers are still spending, but they're choosing. A lot of us have decided when we go into a grocery store, into a drugstore, that we just don't like those prices anymore. So, people are choosing to trade down. People are choosing to go to other outlets, the Walmarts of the world.

On the employment side, the good news is unemployment is very low, but people are also cutting back in their hiring too. So, we're in a low-hiring, low-firing environment. We'll see where we go from here. We're just going to have to stay on top of it.

Sablik: As you mentioned, the labor market has experienced a ton of changes throughout the pandemic and the recovery. One of the biggest, I think, was the widespread adoption of remote and hybrid work arrangements. What effect do you see this having on workers?

Barkin: There's no question that flexibility is positive to a lot of workers. I see it in my own life, and I talk to lots of our people who say the same thing. Maybe that's related to why women's labor force participation has increased so much. It's at the highest level ever for women with a college degree and a kid under five, which is a segment that either sees more flexibility as a positive or maybe perceives that it might be a positive going forward.

What we haven't done is we haven't tested it through a recession. What will that do to people's attachment to the workplace and manager's attachment to the people who work for it? I do wonder how that's going to play out — whenever employers decide they're now going to have to rightsize their organizations, whether people who aren't in the office are going to feel somewhat disadvantaged because they don't have those connections, those relationships.

Sablik: Yeah, I was going to ask if you think this higher incidence of hybrid work is here to stay. Do you think a recession is going to be the real test case for that?

Barkin: I don't think flexibility, once given, can be eliminated. The fact that we all know how to use Zoom or Teams, the fact that lots of jobs have now been proven to be effective remote, I don't think that's going to disappear.

But I do think that how it lands in the end, I think that story is still to be written. And, I've said before, I think the market is going to fight that out. They're going to be two organizations — one that really believes in on-site, teamwork, collaboration, mentorship [and] that's going to insist that its people come in. It's going to compete with another organization that believes in flexibility and ownership, and it'll have a different set of talent, and those talent will compete, and I think it'll be very different by sector.

Sablik: Keeping the train on technology, the Technology-Enabled Disruption Conference, which the Richmond Fed organizes in partnership with the Atlanta and Boston Feds, will be happening on October 1 and 2. How do you think about technology in the context of the Fed's price stability mandate?

Barkin: We're talking about all sorts of factors that drive productivity, that drive price realization. Artificial intelligence would be a good one to talk about. When it comes to the job market, I talk to lots of people who say it's going to eliminate a bunch of jobs, and I talk to people who say it's going to create a lot of jobs. So, when we think about employment, is artificial intelligence going to be a positive or a negative?

You could say the same thing on pricing. I've talked to a lot more companies leveraging artificial intelligence to make their pricing more sophisticated. So, you could imagine it'll actually be a contributor to inflation. On the other hand, why can't consumers have a bot that checks all the pricing and so it'll contribute to disinflation? You can imagine the equivalent to what Google does in comparing airline fares.

I think how this thing rolls out is going to be very interesting. The opportunities or the risks are two sided.

Sablik: Do you think it's going to make it more challenging for policymakers to read the data and figure out the right policy solutions?

Barkin: It's always challenging and the world always changes.

I think the one mistake that's easy to make is forget the impact of technology you haven't thought of. I could describe a whole set of forces — deglobalization would be a good example — that could be inflationary. But you can never forget technology and technology is going to change in every way, shape or form how we think about it. That's what we're going to have to figure out.

Sablik: Another interesting thing that we've seen since the pandemic is that new business formation has been surging and labor productivity growth has also been really strong. Based on your conversations with business leaders around our District, do you have any insights into what might be driving those developments?

Barkin: New business formation is interesting. The number increased significantly in COVID and it stayed up. A lot of work has been done by a lot of talented economists that would make the case that new business formation leads to more jobs in the medium and long term, and more productivity.

The stuff I've seen lately seems to suggest that more of this new business surge is, I'll call it, individual startups. Think of people who are gig workers [and] form companies just to do that work, as opposed to some of the startups that you think about that have created dozens or thousands of jobs. We'll see how that plays out, but it would make sense in a world where a lot of people were going remote and they might have started their own company for all those reasons.

Productivity [has] been an up-and-down story during COVID. The numbers got massively stressed by the fact that a lot of people left the workforce and then came in, and the people who left the workforce often were the lower productivity workers who then came back in.

But I see lots of optimism for productivity going forward. Just a simple example. Two years ago, a lot of companies were short workers, and not just somewhat short workers [but] desperately short workers. And if you're desperately short workers and you can't hire them, or if your wages are going up, what's the next thing you think about? Automation.

As I travel our district and talk to companies, I'm seeing company after company that is installing or has installed automation [and] is seeing those kind of savings. I've mentioned before the fast food operator who told me they could go from 15 people a store to five people a store. Turns out robots can make French fries, too.

So, it makes a lot of sense to me that people would have invested in a labor-short market, into labor substitution. That's going to be a net positive for productivity as it all comes online.

Sablik: Then, presumably those investments are going to be long running in terms of their payoffs.

Barkin: Yes, absolutely.

Sablik: Turning to your work as the head of a regional Reserve Bank, are there any projects or initiatives at the Richmond Fed that you're particularly excited about this year?

Barkin: I'm pretty sure you've had Thomas Lubik on to talk about r-star and talk about the modeling that he and Christian Matthes have done. The question of what the neutral rate is is going to get increasing attention as policy goes forward and the economy normalizes. Thomas has done a lot of brilliant work estimating that. So, I think that's a place people who are interested in macroeconomic issues might want to focus.

Have you had Laura Ullrich on to talk about the community college work?

Sablik: Oh yes, she's a frequent guest on our podcast.

Barkin: Good.

So, it turns out in a world where the workforce is normalizing, we still have a place that's massively short and that's skilled trades. A lot of those skilled trades are produced, if I could put it that way, by community colleges.

The metrics that people use for community colleges are borrowed from the metrics they use for four-year colleges and they're not quite applicable. [For] four-year colleges, it's what percent graduate in six years. But outcomes in community colleges are broader than just who graduates. It's what certificates you get. It's their dual enrollment high schoolers taking calculus. There are mid-career people who take longer than three or four years, people who transfer to four-year schools.

She's developed a metric that I think is a much better metric and should serve the purpose of enabling people to really understand the performance of community colleges and, I hope, will lead to them getting more and better funding.

We've also got a Rural Investment Collaborative. I'm not sure if you've had Carrie or Jason in to talk about it yet.

Sablik: Yes, we have.

Barkin: So, I'm just doing advertising for Speaking of the Economy. [Laughs]

That, at this point, has helped 19 small towns conceive of, develop and get access to funding. So, we're doing a lot of good stuff here, and I hope there's even more to come.

Sablik: As you said, it's an exciting plug for this podcast. Listeners can subscribe to keep up on all of these projects because we cover them regularly here.

Well, I think that's going to do it for us for today. Tom, I really appreciate you taking the time to chat with me.

Barkin: Gladly.