‘The balance of power has shifted towards workers’: Economist

RSM Chief Economist Joe Brusuelas joins Yahoo Finance Live to discuss the outlook for the economy as U.S. job openings reach record levels.

Video Transcript

- Let's turn our attention now to the labor market because we did get that data out from the Labor Department yesterday that pointed to job openings soaring to record 9.3 million last month, highlighting the challenges businesses face as the economy continues its rapid reopening. That report from the Labor Department also highlighted a growing challenge, which is workers quitting at increasing rates, especially in the food and hospitality industry.

Let's bring in Joe Brusuelas. He's Chief Economist at RSM. Joe, good to talk to you today. It feels like the story is sort of similar from so many companies we've spoken to, which is that they're simply having a difficult time hiring right now. What are you seeing right now that points to those challenges and how long this is likely to last?

JOE BRUSUELAS: So what you're seeing is some classic frictions that one often observes coming out of a recession, much less a deep recession. And this one being the most unique recovery in our lifetimes. I think what you're seeing is that we're having a classic mismatch. These things will work themselves out over time. But right now, down the income ladder it does appear that there is a great wage revolt occurring amongst people who previously worked in food and beverage, perhaps some other areas of leisure and hospitality. They're not quite sure they want to go back to work in those industries.

And if they do, they're going to require more than $2.39 an hour plus tips. And this is causing a bit of churn in the market and a bit of consternation amongst the people who own those businesses. Yep. There's only one worker per job opening based on the jobs opening, layoffs, and turnovers, and BLS data. Now, this isn't new. We saw this between January 2018 and February 2020. But coming out of such a deep recession with so many people out of work, it's a bit of a surprise to some. Not to me, but to some.

- Joe, what does that suggest in terms of the standing for employees and how competitive they need to be with their wages if employers really feel like they have leverage?

JOE BRUSUELAS: All right. So employers have lost leverage. The balance of power has shifted toward the workers. In our RS and middle market business index, we see well over 2/3 of survey participants telling us they're going to increase compensation going forward over the next six months to both attract and retain workers. It will become much more highly competitive down market than it has been really in our lifetime in order to attract workers.

Second, many firms are probably going to begin to consider a different mix, so to say. Perhaps more technology and less workers, especially in food and beverage going forward. We've all become accustomed to sitting down at tables with bar codes. We take a picture of those bar codes with our phone. We can see the menus. Often, we can order without interacting with anybody. This is just part of the changing dynamics of the US economy coming out of the recession in that food and beverage business.

- Yeah. It's interesting. I think so many of us have gotten used to looking at menus on our phones now, especially at restaurants. If you're talking about tech sort of filling the void for a lot of these businesses, what does that suggest in terms of the jobs that will be available, the amount of jobs that are available? I mean, I'm thinking back to pre-pandemic when the conversation was about increasing automation and concerns about job losses stem to that.

JOE BRUSUELAS: OK. So a couple of things. I think jobs are very plentiful if you look at that JOLTS data. We have over 9 million jobs available. We only have one person available looking for work for each job. I think right now that confirms it. Again, a slight shift in the dynamic towards bargaining power on the part of labor. It's been decades since that's been the case. Second, this will play into the inflation data that we saw Julie Hyman talking about very ably before in the prior segment. And it's going to be part of the discussion, I think, going forward for the remainder of the year.

- I mean, you could argue that some businesses have already sort of started to pass down a cost of increased wages and their challenges in hiring to the customers themselves. What are you seeing on that front? And how significant is inflation stemming from that likely to be?

JOE BRUSUELAS: Right. So in our May middle market business index, 80% of our survey participants essentially told us they're paying higher prices, and they expect to pay higher prices over the next six months. But only 45% or so are actually passing them through to customers. They're raising prices. Now, that's broadly consistent with what we saw over the past several years when inflation really averaged somewhere between 1% and 2%.

This plays into the idea that, yes, we're seeing a bump in prices due to supply chain constraints as demand outstrips supply coming out of the pandemic. But it also supports, I think, the policy call that at the Federal Reserve that says, yeah, we're going to see some price volatility. Prices are probably going to be near 5% in the CPI, 4.8% in my point call, my point forecast. But these price increases are likely to prove temporary, or as we all like to say, transitory.