Marketplace - As goes productivity, so goes wages. Right?

Episode Date: December 27, 2024

When workers get more productive, higher wages might follow. So what about jobs that just can’t get more productive? In this episode, we explain why those workers’ wages may rise anyway �� a concept called the Baumol effect — with help from an economist who’s also an amateur bassoonist. Plus, the trade deficit is no sweat, a Georgia program trains refugees for tech jobs and we check in with an urban tour guide in Kansas City.

Hey everybody, it's Kai. Time is running out to give a tax deductible donation to Marketplace before the end of the year. Donate today to support the public service journalism that you rely on. Every donation and every dollar helps us plan for the new year ahead. Go to Marketplace.org slash donate and invest in news you value and trust. That's Marketplace.org slash donate or you can follow the link in the show notes. The economy didn't take the week off for the holiday so we've got some news on retail trade and technology plus the weekly wrap. From American Public Media this is Marketplace.

In Washington DC I'm Kimberly Adams in for Kaia Rizdal. It's Friday, December 27th. Good to have you along. The bulk of one of the busiest shopping periods of the year is pretty much over, and we are ready to dive into the details of what we learned about the American consumer, plus the other economic news of the week, and you know what? Why about the American consumer, plus the other economic news of the week. And you know what? Why not? The year. For that, I'm joined now by Jordan Holman, a business reporter at the New York Times, and Katherine Rampell, an opinion columnist at the Washington Post. Welcome you two.

Hi, Kimberly. Hi, Kimberly. Hey there. So Jordan, you're the retail reporter. Let's start with you. How did the almighty American consumer do this holiday season? We held up. So, the numbers are in when it comes to the holiday shopping season. It was up 3.8%, which was more than was expected. And this holiday season was really just defined by normalcy.

That's basically the same growth that we saw before the pandemic in 2018 and 2019. But even more so, it was like the level of discounting that felt normal, that brought people out and made them want to spend. Say a little bit more about that, Jordan, because people have been complaining about these higher prices for ages, but yet they're still spending in the traditional way. How did retailers actually get them to open up their wallets? Digital wallets, I guess. Right. Yes, because online spending was stronger than in stores. But I think if you'd like take a look at the whole year, you were hearing retailers say people are being more discerning

about what they're buying. They're only really spending when there's a deal to be offered. And that is just magnified during the holiday shopping season. So the sales seem to be concentrated as in people were waiting in November and December to really do that splurge that we kind of hear, we definitely heard about during the pandemic. And so as people's, you know, you keep hearing retailers say they were pulling back on spending, maybe the consumers were actually just waiting for this time period. And that's why you saw, you know, a boom in certain categories like electronics and apparel and toys, which are classic holiday shopping category. Now, Katherine, you wrote about something very relevant to how much we all decided to

spend this holiday season. Consumer sentiment, how did that set us up for the holiday spending season and how is it setting us up for what we're heading into? It's been super interesting to watch consumers' views of prices going forward. Since the election, there's been a huge spike in the share of consumers who say now is a good time to buy big ticket items like TVs, refrigerators, automobiles, things like that because they're anticipating the prices will go up. And that's what's super interesting here. You know this whole election of course was about

consumers frustration with inflation, what the next president can or cannot do about it. And Donald Trump ran his campaign effectively arguing, not effectively explicitly arguing that he was going to bring prices down. But in the month since we've gotten those election results, it seems like consumers are having second thoughts about whether they believe that's going to happen. You see that in the overall inflation expectations numbers, they ticked up a little bit. People are expecting like 2.8% inflation year over year, a little bit higher than they had been predicting before. But again, it's really in these big ticket items, presumably in part because

they're worried about tariffs. Things like automobiles, even if they're built here, have a lot of inputs from abroad. There's a very integrated supply chain across North America, for example. If we have tariffs on Mexican parts, then that will drive up the cost of automobiles. So I think consumers are finally starting to internalize that and acting accordingly. I'm curious what you think changed though, because it's not like we're saying anything different as business and economics journalists about what tariffs mean now than we were before the election. I don't think I've been saying anything different, but I do think that there has been more news

coverage in general paid to what happens if these global tariffs get put in place and or China specific tariffs as well as the potential consequences of things like mass deportations. You know, there are different ways that that might affect the economy, but the agriculture industry relies heavily on immigrant labor, including undocumented immigrant labor. And there's been more stories recently looking at what happens to the cost of produce, for example. If you have tariffs on Mexican goods, avocados and tomatoes and other things that we get from Mexico, and you have major workforce shortages in the United States because a lot of agricultural workers

end up getting forced out. So I think there's just been more salience of the issue, is my guess. But who knows? Trump also did acknowledge recently, hey, I may not be able to get prices down. So if people listen to that, maybe they're taking it to heart.

Before we let you both go for the year, to get prices down. So if people listen to that, maybe they're taking it to heart. Before we let you both go for the year, this is our final wrap of the year. And I'm curious to hear from both of you. What you think the biggest economic story was of the year and what you think is going to be the biggest economic story heading into 2025. Jordan, you go first. Well, my whole vantage point is through how consumers spend, why we spend on the things. So I feel like it is the return of the winners and losers within retail, whereas the past few years pretty much, you know, a rising tide raises all boats.

But now you're seeing bankruptcies kind of in different pockets. You're hearing about big lots in Party City while there's just the strength of Walmart and TJX. So that division of those companies and where people are spending is getting further apart. And I think that's just going to only continue into the new year. What about you, Catherine? I would say this year it's still the story of inflation. Inflation has come down a lot, but that last mile has been really tough for the Fed to

achieve. We're still above 2% inflation, which is the Fed's target, And the Fed recently has been revising its forecasts going forward about how much longer it will take to get inflation down. So that's sort of last bit of stubbornness. I would say for next year, inflation and where things are headed will still be an issue, but I'll be watching trade as we've been talking about in taxes. There's going to be a huge food fight over the tax code next year because a large portion of the 2017 tax cuts expire. So that's going to be a major economic story. Well thank you so much for all of your advice

all year long. Catherine Rampell, an opinion columnist at The Post, and Jordan Holman over at The New York Times. Thank you. Thanks Kimberly. Wall Street Today tech stocks drove a bit of a sell-off. We'll have the details when we do the numbers. Speaking of trade, preliminary numbers out today from the U.S. Census Bureau show that the country's trade deficit in goods grew by over 4% in November, up to nearly $103 billion. Now, this isn't new the US has consistently imported more goods than at exports since about the mid 1970s and

narrowing the gap between imports and exports has long been a goal of incoming President Donald Trump though the deficit actually grew during his first term in office. Marketplace's Henry Epp takes a look at why we have a trade deficit in the first place and what that tells us about our economy. When we have a trade deficit in goods with other countries, that means just one thing, says Sharon O'Halloran at Columbia University. We are buying more things from abroad than we are selling. And while it's easy to think that means we're somehow losing to other countries, it's actually

more complicated. For one, we export a lot of services – software, accounting, education – which changes our trade balance. Also says Rachel Brewster at Duke Law School, what should be taken into account is… How much investment you're getting into the country versus how many goods and services you're selling abroad. And on that level, we're doing well, Brewster says. Foreign countries and businesses want to invest in our stock market and in our government

debt. And that is going to drive up the value of the dollar and it's going to lead to a trade deficit. Because the stronger the dollar, the more expensive it is for other countries to buy our exports, but the cheaper it is for us to buy theirs. And we've been consuming a lot, which helps drive the U.S. economy. Mary Lovely at the Peterson Institute for International Economics, a Marketplace underwriter, says our trade deficit reflects that... We're consuming more than we're earning, which means we are borrowing more.

Borrowing is okay, she says, if it's going towards investments that eventually help us grow the economy. And it pays off in the future. We have a higher income. We can easily meet those payments. But if we're just spending on stuff that doesn't eventually help us produce more, she says, that's where things can get messy. I'm Henriette for Marketplace.

Like Henriette was just saying, goods are not the only part of the trade picture. Countries also export the things people do as well as the things people make. And according to data from the UN, service exports now represent a quarter of world trade. Domestically, that number is even higher, with services making up more than three-quarters of the US economy. So to understand that services slice a little more clearly, we decided to check back in with Lisa Pena, owner of Urban Hike's Kansas City.

Lately, business has been doing well, despite it being cold in Kansas City. We have a seasonal urban hike on the Country Club Plaza that is in conjunction with the Plaza Christmas Lights. That has been filling up a lot of the weekends that we offer it and we just offer it in December. However, since it is cold we are offering less hikes and we will start to offer more hikes in March. When I think about the wins this year, I think about some small wins of a $10,000 increase in revenue and a $5,000 increase in profit. And we still aren't finished

with December, but that is looking at the whole year. We've had 300 more participants participate in our urban hikes this year, and we are up to nine guides right now and with myself We're 10 guides total. We just added a new guide this December to give our Plaza hike We have grown a lot in our community collaborations For example, we've collaborated with the Kansas City Library the the local KCUR, the World War I Museum, and were even highlighted in the Kansas City, Kansas School District annual report. We also have added five new hikes this year, which is pretty exciting. Our most recent hike is Taste Your Way through KCK, where we have different coffee samples, a taco sample, and also a bread and

pastry sample from a local Mexican bakery. The goals that I have for 2025 are mostly around having more corporate groups. Corporate groups love to come out on urban hikes because it's a different way to celebrate with their staff or to take their clients out. And that's something that I really would like to grow in. We saw 42 different corporate groups this year, but we could easily see 82 different groups in 2025. Lisa Pena, owner of Urban Hikes Kansas City. Coming up... Basically, I'm going to add like a burger, pizza, a broccoli and a cookie on the side.

Interesting combination. But first, let's do the numbers. The Dow Jones Industrial Average lost 333 points, three-quarters of a percent, to land at 42,992. The Nasdaq fell 298 points, 1.5%, to close at 19,722. And the S&P 500 shed 66 points, 1.1%, to finish at 5970. For the week, the Dow added 1⁄3%. The Nasdaq picked up 3⁄4%, and the S&P 500 improved 0.7%. Tech stocks, which rode high this past year, took a bit of a percent and the S&P 500 improved seven tenths percent.

Tech stocks, which rode high this past year, took a bit of a hit today. Meta subtracted six tenths percent. Alphabet, parent company of Google, slid one and a half percent. Chipmaker Nvidia was off two percent. Bond prices fell. The yield on the 10-year T-note rose to 4.63% and you're listening to Marketplace. This is Marketplace. I'm Kimberly Adams.

We talk about a lot of economic concepts on this program. Inflation, for example, or supply and demand. Those are terms from textbooks that can help explain the forces that shape our lives. And we came across a term the other day that made Marketplace's Maria Hollenhorst say, huh, don't think we've talked about that one before. Some people discover their passions early in life. When I was a kid, I just saw a picture of a bassoon and fell in love with it. That's benga agilory. Bassoons are woodwind instruments, by the way, typically used to

play lower notes. But I was too small to play the bassoon because it's a pretty big instrument. So I had to wait until PBT kicked in before I could start playing the bassoon. Today, Agilori is an economist who works on rural policy in Washington, DC. But we're going to use his musical hobby to explain an economic concept. The Baumel Effect. The Baumel Effect is named after economist William Baumel. In the 1960s, he started exploring why prices rise,

even in industries that haven't changed in literally hundreds of years. Cue the bassoon. -♪ BASS SOLO PLAYINGan-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e-mahal-an-e- in 1729. In 1729, when this piece first came out, bassoon players were going to be able to read the music and then play it within the orchestra or in a quartet or something like that. I couldn't find wage data for bassoon players in 1729, but let's just say they earned a few chillings a week. So then fast forward 300 years, I'm going to be able to play that same music with the same instrument, with the same fingerings, and produce the exact same song

that would have sounded the same in 1729. ["The Star-Spangled Banner"] Even though the time and skill it takes to play that piece today is the same as it was back then, you cannot pay a 21st century bassoonist a few shillings a week. He or she would simply get another job. So if you see wages going up,

you're gonna assume that in that industry, they'll be more productive. But then what happens is that some of the people, he noticed that in certain industries where labor productivity hasn't increased, wages are going up. So the question is, well, why is that? The reason is competition for labor. In order to keep people in industries where the labor productivity is not going up, you have to match the wages in the ones where the labor productivity is going up. That is the Bommel effect in action. Productivity gains in one industry spill over and increase wages in other industries.

And it has implications far beyond music. If you type Bommel effect into a search engine, one of the most common industries mentioned is education. So let's say that people see that tuition is rising at post-secondary institutions. They will often immediately jump to the idea that this is the Baumel effect. Caroline Hauksby is a professor at Stanford University

who studies the economics of education. And when you think about it, teaching is kind of like a live performance. You have professors like me where what we do is advise PhD students one-on-one and discuss the latest research. And really, we're probably not that much more productive than we've been in the past. Universities have to compete for workers

with other industries, like tech or finance, that have gotten more productive over time. So wages go up. But Huxby said you can't blame all tuition cost increases on BOML. like tech or finance that have gotten more productive over time. So, wages go up. But Huxby said you can't blame all tuition cost increases on BOML. Some areas of education do not really have that much of the live performance aspect to them anymore and in fact are kind of going in the other direction. And this was accelerated a lot during the pandemic.

Like online classes, which make it easier for professors to teach thousands of students. One big question in thinking about where the Baumel effect applies and where it doesn't is... Well, what does greater productivity mean? That's economist slash bassoonist Banga Agiluri again. And he said there are ways in which you could say that technology has even made musicians more productive.

I mean, 300 years ago, a quartet needed four musicians playing live. But this is a recording of Agilori playing all four parts of Rondeau at different times. He recorded it months ago, and now you're hearing it while he's off doing something else. Economics, maybe? I don't know. So in a way, I am more productive. It's just that productivity isn't always the point.

Sometimes you just want more arts and culture. You can bet that new technology is going to make a whole lot of industries a lot more productive in the next few years. Think of AI. You know, I was doing something even very simple in a statistical computer program the other day and I was like, how do you do that? Just just use my friend ChatGPT and it came up with code. And I bet, you know, I saved a couple hours. That's Melissa Thomason, an economics professor and associate dean at Miami University in

Ohio. Think about how much more code I could write because I didn't have to struggle with trying to remember this very arcane thing that I hardly ever use. So the Baumolt effect would say that that's pushing wages in the tech sector higher. And that could have spillover effects for all sorts of industries, even the ones that don't use AI. I'm Maria Hollenhorst for Marketplace. Jobs in tech and coding and AI often come with relatively high wages in this economy, making them ideal if you're trying to climb the economic ladder in the U.S., which is exactly what many refugees coming to this country are trying to do.

Last year, over 60,000 refugees resettled in America, and among those that are working age, many end up starting with low-wage, low-skilled labor. But programs around the country aim to bring thousands of new Americans into growing industries, such as software development and artificial intelligence. Marlon Hyde from WABE in Atlanta looks at one initiative. Blesha McGar is one of 20 refugees working away in a classroom during a free coding boot camp called Ref Code. It's a program led by software engineers that teaches refugees how to code and other tech skills. On McGar's screen is a website she made with two furry monsters, one blue and one orange,

and they're ready for lunch. Basically, I'm going to add a burger, pizza, a broccoli, and a cookie on the side. Magar is 26 years old and originally from Nepal. She's a hospice care worker. She's flexing the skills she learned in the boot camp to practice creating a website pixel, something that reacts when you hover a mouse on it. She clicks the burger and drags her cursor over the monster. So, if I click on, you know, broccoli, it might just open.

Magar learned about the boot camp from friends, and it felt like an opportunity she could not pass up. Since it's free, and I would be learning like a skill that's very prevalent now. So, two birds with one stone. Brenton Strein, a software engineer, started the Revcode program in 2017. Companies are almost desperate to hire talented software engineers. So there's this huge need there, and then on the other hand there's this huge need of new Americans starting over from nothing.

Strein says many refugees want tech jobs, but have to settle for roles like rideshare drivers because it's hard to learn how to code. If you think about a ladder that you climb to get to your first job, a lot of the rungs on that ladder are already in place. But what's missing is that bottom rung for people who haven't gotten a start yet,

don't know anything about code. The 10-week bootcamp provides hands-on experience with AI and coding, and some students do find jobs after, and the industry is hungry. According to research from the Bureau of Labor Statistics, tech jobs in the U.S. are expected to grow faster than the workforce in the next decade, increasing by over 350,000 jobs a year.

Refcode has recently grown and is now funded by DeKalb County, part of the Atlanta metro area. Strine says he can expand boot camps, pay instructors, and offer internships to some graduates. We're starting to fill in the rungs on that ladder a little bit, where we're paying our graduates now to do real work and put a real job on their resume. And for some participants the program can give a jump start to a new career. That's what 54-year-old Tesfai Gabeo is hoping for.

He came here over a decade ago from Ethiopia where he was an irrigation engineer. My background is irrigation engineer. I'm an irrigation engineer. He currently works at a supermarket and hopes the program will help him get a job in IT. Really I'm interested to change my career. Now I'm working on professional work. I try to change my career to IT. A couple weeks later, Gaba Yo and the rest of his cohort is ready to graduate.

Strine congratulates them. Let me tell you, I'm really excited because you made it to the end of the class. Graduates take photos at the front of the room. They get a slice of pizza, a diploma, and a fresh line on their resume that could help them land their next job. In Atlanta, I'm Marlon Hyde from Marketplace. This final note on the way out today, not every refugee can get the kind of skills training like we heard about in Atlanta, and finding work is particularly fraught for those seeking

refugee status who enter the country illegally. The surge of migrants in several parts of the country is one of the reasons federal officials blame for a more than 18% increase in homelessness in the U.S. this year. In addition to migration, an overall lack of affordable housing, plus several significant natural disasters, helped contribute to the surge. One somewhat bright spot in the numbers, veteran homelessness is down by more than 55 percent since 2010. Our theme music was composed by B.J. Liderman. Marketplace's executive producer is Nancy Fargalli. Donna Tam is the executive editor, Neil Scarborough is the vice

president and general manager, and I'm Kimberly Adams. Have a great weekend everyone, we will be back on Monday. This is APM.