Trade policy uncertainty, labor shortage worry Philadelphia Fed chief
Patrick Harker hears a common refrain from business leaders: “I don't know what's happening with trade policy. How can I plan?”
While the economy is strong – and unemployment is at historic lows – an uncertain U.S. trade policy is one of the top challenges for businesses, said Harker, president and CEO of the Federal Reserve Bank of Philadelphia.
But it is not the only one, Harker said in a late May interview with the Central Penn Business Journal. He was visiting a startup incubator in State College at the time.
Others include difficulty finding workers, insufficient infrastructure and college debt.
But Harker hopes at least some of the problems can be alleviated through a Philadelphia Fed project aimed at developing the workforce and improving infrastructure. The Philadelphia Fed, one of 12 Federal Reserve banks around the U.S., covers Delaware, nine counties in southern New Jersey and 48 counties in the eastern two-thirds of Pennsylvania.
The interview below has been edited for length and clarity.
CPBJ: What is the biggest issue the Federal Reserve System is focused on right now?
Harker: One is around the skill mismatch. There are employers with jobs and they can’t find the people with the right skills. For example, the one story we hear over and over, and we’re not just talking about college-level individuals, but diesel mechanics, truck mechanics. There is a nationwide shortage of people who have not only the manual skill, but the digital skills. Because a truck is as much a computer today as it is a vehicle. Having that mix of digital skills and manual skills is in short supply. We’re hearing this all across the board.
About Patrick Harker
Title: President and CEO, Federal Reserve Bank of Philadelphia
Background: Before being appointed in 2015 as president of the Philadelphia Fed, Harker was president of the University of Delaware and a professor in business and engineering. He was a White House fellow in 1991 under former President George H.W. Bush and a special assistant in 1991 and 1992 to then-FBI Director William S. Sessions.
Education: Bachelor’s degree in civil engineering, master’s degrees in civil engineering and economics, and a doctorate in civil and urban engineering, University of Pennsylvania.
CPBJ: What else factors into the labor shortage?
Harker: If that person can’t live anywhere near the job or doesn’t have transportation to get to the job, they don’t have a job. So we have to solve the problem.
There’s issues of housing or housing affordability. Take the extreme example of the Bay Area in San Francisco. There are lots of jobs that are just empty because people can’t afford to live anywhere close to where the jobs are.
Or there’s no transportation system to get them there in an efficient way. This happens in the Philadelphia region.
Say I’m a single parent and I have children and I’m going to take three buses each way to get to my job. It’s not worth it for me to go to the job. It just doesn’t make any economic sense. So there are lose-lose situations there that we need to try to make win-win situations.
Or in certain communities you hear this repeatedly, there are people, but because of things like drug testing, they’re unqualified for the job. It’s a significant issue.
And related to that issue is one that we don’t talk about that much, which is immigration policy. I hear this from companies a lot, ‘I can’t find U.S. workers. Please get me some workers somewhere,’ and they just want a sensible immigration policy. This is outside our wheelhouse. It’s not what we do at the Fed, but it does affect the economy because if I can’t find workers here, I will find workers somewhere.
CPBJ: What industries in particular are you seeing shortages in?
Harker: The service industry is another area we’re seeing across the board. We’re seeing it from home builders who can’t find manual laborers. You hear a lot about electricians and plumbers, but they can’t even find the manual laborers any more. So this is a common issue.
And it’s going to get worse in that the baby boomers are going to retire. Labor force participation, our estimate, from our economist in Philadelphia is, it’s going to dip down another 2 percentage points over the next five years because the boomers are retiring.
We have a significant issue around shortage of skill, which means we need to double down on bringing people off the sidelines and back into those jobs, but also solving some of these infrastructure problems so that they can get to the job or live near the job.
CPBJ: What is the solution?
Harker: There’s no one solution to this, but it’s really looking at a comprehensive solution particularly for low- to moderate-income people. That’s why we launched in Philadelphia our economic growth and mobility project where we’re focused on three legs of the stool: job creation, workforce development/skill development, particularly below four-year college degree, bringing people into what we call opportunity occupations – jobs that pay above median wages, where you don’t need a four-year college degree. You need something beyond high school typically.
CPBJ: What are employers doing in response to the skill mismatch?
Harker: As employers have harder and harder times finding the people with the skillset they need, they’re reinvesting now to say, ‘Well, we’re going to have to help create these people.’ And that’s a good thing. Because it’s bringing people off the sidelines. But it’s work force development, job creation and, of course, it’s an infrastructure issue.
There’s an apprenticeship program at the Philadelphia shipyard where we met a gentleman there who got 29 college credits when he was doing his apprenticeship, got his associate degree and moved up to be a supervisor and is now working on his bachelor’s degree. All paid for by the company. He is debt free.
A man in Johnstown who runs a manufacturing facility needs workers. He’s partnered with the school district to create apprenticeship programs and scholarship programs to try to get more interest.
CPBJ: What role do millennials play in the labor force?
Harker: Millennials in number are actually a larger generation than boomers. But they’re coming into the labor force in a different way. They’re behaving a little differently. There’s a quality of life that they are looking for. A big part of what they want is not just the job and meaningful work. It’s also balancing that with a quality of life.
For example, and I see this in my own children, they’re more reluctant to move to a job. The joke always was in the old days that IBM stood for ‘I’ve been moved.’ They’d just move you around, and you just accepted that. Millennials are not accepting that in the same way. They want to know where they’re going to live, the lifestyle they want, and they want a job to meet that lifestyle as opposed to my career and my job and I’ll go wherever it takes me. It’s just a different attitude. It’s not better or worse. It’s just different.
CPBJ: The minimum wage is a hot topic. Pennsylvania’s minimum wage is $7.25 per hour, the federal government’s mandated minimum wage. How would raising the minimum wage impact the economy?
Harker: The evidence of the minimum wage’s impact depends on where you stand. The classic economic argument is if you raise the minimum wage, you’re going to see fewer jobs, and there’s evidence that that’s true.
If you raise labor prices above what more than one market can sustain, you are going to see firms respond. For every action there’s an equal reaction. It’s a dynamic that one needs to understand. For some communities, it will be a benefit.
I don’t opine on whether it’s a good or bad thing, but I think one has to think carefully about these issues.
CPBJ: How is student loan debt affecting the economy?
Harker: It’s the second largest piece of the consumer debt pie after mortgages. It exceeds auto lending, home-equity lending, credit-card debt by a lot.
Small-business formation has slowed down. I can’t start a business if I have $50,000 of student debt as well. Household formation has slowed down. There’s a whole host of things.
On average, going to college is better than just a high school degree. But on average for some people, it’s better to be a plumber than it is to go to college. We have to stop this myth that the only path to middle class success is to go to college right away.
CPBJ: What keeps you up at night?
Harker: The thing that keeps me up most right now is what keeps the business leaders I talk to up most. And that’s policy uncertainty. If you think about the world we’re living in right now, trade tariffs on, trade tariffs off, I don’t know what’s happening. So how can I plan? Here I want to invest in plant equipment and we’re a manufacturing firm. Then I’m hearing there may be trade tariffs. How can I make this decision?
Well, what I’ll do is just wait. The best thing to do is just wait. That’s the biggest threat to the economy right now is just the uncertainty about knowing where non-monetary policy is going.
I’m pretty sure we know where monetary policy is going. We articulated that pretty clearly. It’s on the fiscal side, on the immigration side, on the debt. We have taken on massive federal debt and that will have implications for the economy down the road. That adds to this uncertainty. That debt also means that states – if more things are moving to the states who are already tightening their budgets – have no room to move.
That’s the one plea I hear from every business leader I meet with. Just tell me what the rules are, and then leave me alone. And then solve my problem on getting talent and clearing the brush so I can grow the economy.
The Fed doesn’t grow the economy. Nobody in government grows the economy. Real businesses, real organizations, in community after community, grow the economy. And they are just struggling with this uncertainty right now.