Planet Money - SUMMER SCHOOL 5: Car Parts, Celery & The Labor Market

Episode Date: August 11, 2022

You can learn a lot about a person from their job. The same can be said of an economy. The market for jobs can us a lot about how the economy is doing, but more importantly, it is where we look to see who the economy is working for, and who is left behind. In today's lesson we'll visit two workplaces each facing a different labor puzzle. At one end, there's the question of when to replace a worker with a robot, and what it is like to be that worker waiting for the robots to come. We'll also visit a farm where raising wages aren't enough to attract the workers needed to do the work. How wages are set, and who gets the raises on this session of Summer School. | Subscribe to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney. |At this Summer School, phones ARE allowed during class... Check out this week's PM TikTok! | Listen to past seasons of Summer School here.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This is Planet Money from NPR. Hello and welcome to Planet Money Summer School, the class that puts the opportunity in opportunity cost. I'm Stacey Vanek-Smith, here with an opportunity for macroeconomic learning. By now, we know the origins of macroeconomics, the juggernaut that is gross domestic product, the ups and downs of the business cycle, all about inflation and money. Today, though, is a really special day because

today we are talking about the part of the economy that is probably the closest to most of our hearts, the job market. There is a supply and a demand for workers and jobs that really sits at the center of our whole economy. This equilibrium is so crucial to the health of our economy and to all of our lives. And when this equilibrium gets thrown off balance for some reason, it just has an enormous impact on all of us. When there are, for instance, too many workers and not enough jobs, you can get really devastating unemployment, poverty, desperation. The whole economy can start to unravel like we saw happen during the Great Depression. Also, when there are too many jobs and not enough workers to fill those jobs, you can see companies struggling to fill positions.

It can hold back economic growth, push up prices, cause the economy to kind of grind to a halt. Here to tackle this really monumental economic topic with us is Julia Pollack. Julia, you are the chief economist with ZipRecruiter, but you've had a lot of other jobs as well, right? You've taught economics at Pepperdine. I've also done policy work on Capitol Hill. I think you also served in the military. Is that right? I joined the Navy in 2011. So I became a helicopter mechanic. What? You know how to fix a helicopter? I sure do. If you get a private helicopter one day, Stacey, you should come to me. I will. I mean, you'll be at the top of the list. I have like a million questions. I feel like we could do a whole show about you

fixing helicopters, but we should get to the economic lesson for today. And truly, it is a big one and a really important and interesting one. It is jobs and unemployment, the labor market. And today we wanted to really explore both parts of this equilibrium. So we're using two different stories to do it. And in the first one, we hear about a situation where jobs are going away. We hear about unemployment. For this one, we go back to 2015 with reporters Adam Davidson and Hana Jafi-Walt. They are in one of the heartlands of American manufacturing, Greenville, South Carolina. And Adam goes there to see how the labor market is changing. Julia, is there anything you think people should keep in

mind as they're listening to this? This is an opportunity to think about outsourcing, to think about wages, how high they should be, automation, about whether it makes sense for them to go to college or finish high school. It really covers almost every issue that comes up in a labor economics course. Well, if ever there was a sales pitch to listen to his story, that is a very good one. Up right after the break, we will hear the last job with Hannah and Adam. After visiting a bunch of factories, the one that I thought really represented this trend I wanted to understand about the distance between low-skill and high-skill work was a factory owned by Standard Motor Products. Standard Motor Products makes replacement parts for car engines. So they do it under a lot of brand names like NAPA and AutoZone.

So it's a decent chance that people who have replacement parts in their car have standard replacement parts. They just don't know it. And when I first went, you know, you think auto parts plant. I don't know what you picture. I picture big machines, grease, and like big hulking guys. Like blue jumpsuits. Exactly. Well, they do have the blue jumpsuits.

But other than that, it was very, very different. It was people often hunched over tables with microscopes, people typing into computers attached to very clean machines that do their work inside of a box in a very clean, precise way. It looked almost more like a really big high school science lab than what I would picture as an auto parts plant. So like big robotic parts that are like doing all the work sort of very separate from the few people that are actually on the floor. Yeah. Now, the woman that I ended up spending most of my time focused on is a young woman named Madeline Maddy Parlier. She's 23. She has two kids, but she's a single mom. She's totally straightforward about how she wants to make a great life for her kids and how hard that is.

So she came to this auto parts plant. I think she had a vision kind of like ours of a lot of tough work. And she comes, and her job is to push little buttons. You know, I'm here all day and I'm used to sweating. I mean, really sweating. You know, I come here and I'm putting pieces and I'm like, what am I doing? Because it's so many machines doing what people... Right. It's so different to see how far factories have come from the old time that I'm used to. It's an eye opener. But that is not the growth area of employment here.

I mean, the growth area of employment are the people who actually know how to trouble-check those new manufacturing machines, how to run the computer software that runs those machines, people with a lot more skill than Maddie. I see a microscope. Yeah, we have a microscope, a height stand, snap gauges, ID gauges. We use bore mics, go-no-go plugs. We run here about nine different machines. That's Ralph Young, and I came to think of him as the perfect model of the new American factory worker. He knows everything. I mean, you should just see the other really highly skilled workers just like staring in reverence at Ralph Young. I mean, these machines that cost half a million dollars and are incredibly complex, electronics and hydraulics, he can just take them all apart, put them all back together. He's a qualified electrician and a qualified plumber.

He just has this encyclopedic knowledge. And at the heart of this process is something he also is an incredible expert at. It's CNC, computer numerically controlled. And it's a complicated computer language that tells these really expensive machines exactly how to cut the metals. And Ralph, no surprise here, is also an incredible specialist in CNC programming. When I came here 20 years ago, we didn't have CNC equipment. It was all manual lathe, screw machines. It was more of the hammer and screwdriver fix to where now it's all finesse.

That phrase, now it's all finesse, I felt like that should be the motto of American manufacturing. Welcome to Greenville, now it's all finesse. Now it's all finesse, and not everyone knows how to do finesse. I mean, I learned an awful lot about a fuel injector, which is this incredibly precise instrument, which couldn't exist without this new machinery. Parts of it are so precise that a virus couldn't fit through two pieces of metal. It's a fraction of a micron, hundredths of a thousandth of an inch. And that's something that someone like Ralph can do.

A seven or eight micron wrong adjustment in this machine costs us $25,000 workhead spending. Really? Two seconds, we could lose $25,000. In two seconds? In two seconds. And that was what was amazing about the technological change we've seen in manufacturing. And by the way, I think this applies to a lot of other places as well. Technology at the high end means you're more valuable. I mean, if you're going to invest in several million dollars of machinery, someone

like Ralph who knows how to operate and repair that machinery is now way more valuable than any one worker was in the old world. Ralph really has bargaining power. He can really command a higher wage. But technology has the other side as well. It makes things incredibly simple, where workers become almost interchangeable automatons. If there's a process that takes two minutes to learn, you haven't invested anything in that person. If that person shows up late one day or whatever, it's just very easy to dismiss them and just get someone else to replace them. But I don't even think of us as having jobs like that in the United States anymore. We've lost a lot of them.

In just the last decade, we've gone from more than 18 million manufacturing jobs to around 12 million. So that's a third of the manufacturing jobs that were left. And Maddie's job is vulnerable. How long does it take to learn this? It takes like not even five minutes because it does it for you. All you do is put the piece in, push the clamps down and push your finger.

The only reason I learned that she does have a job is that it's a little more expensive to get a machine to do what she does. I talked it over with Tony Scalziti, her boss, and he said, sure, technologically it's very easy to get a robotic arm to do what she does, but it costs around $100,000. So Maddie's cheaper.

So Maddie keeps her job. But let's say there's some new enhancement in robot arm technology, and that arm becomes $50,000 instead of $100,000, or there's some factory in Mexico or China or something that figures out how to do this process much, much cheaper. You know, it's hard to see how Maddie keeps her job if she's not able to acquire those skills anytime soon.

I wanted to understand how this all looks from the whole corporate level. So Standard Motor Products has more than a dozen factories all over the US and Mexico and Poland. And I was surprised to learn that they're run out of Queens, New York, on a Long Island city just across the water from here by Larry Sills. He's the third generation. His dad ran the company and his grandfather ran the company. And he's grooming his son, Eric, to take over the company when Larry's done. And they've had to lay people off over the years. And we asked him, what's that like? It's horrible. And they've had to lay people off over the years. And we asked him, what's that like? It's horrible.

It's gut-wrenching. And we try, because we are a family company. We're not a big Wall Street type company. We're a family company. We have a very strong loyalty to our people. And we think they feel the same back. So this is brutal. So why does he do it? It's up to him, right?

He can keep people. If it's so brutal, he should keep their jobs. It's not up to him in a way, and I've spent a lot of time with this company. I came to really believe that they, frankly, if you were an investor, you would wish that they fired more people. And frankly, if you were an investor, you would wish that they fired more people. They keep people on longer than other companies might because of that family-run ethic. But Standard & Motor is family-run, but it's also a publicly traded company. That means, by law, Larry's job is to return value to his shareholders. He has to.

And he says returning value to his shareholders means creating auto parts at a quality and a price that people will actually buy. So he says he's not the one making the key decision. The decision is not made by us. The decision is made when the consumer walks into Walmart and there's two products on the shelf. And one is made in this country and one is made in China. there's two products on the shelf, and one is made in this country, and one is made in China, and the one in China is 50% cheaper than the one that's made here, and they choose the one that's made in China. That's when the decision is made. That's why Larry has had to do all sorts of things. I mean, he's had to, over the course of the last few decades, outsource more and more of his manufacturing to China. He opened factories in Puerto Rico and then Mexico and then Poland, simply because there

was no way to compete based on U.S.-made goods. Now, what was so striking about Maddie is she really knows all this. She knows that the old days are over. She knows that technology and low-wage workers in other countries are in a position to replace her someday. She knows that she really needs to go back to school. She really needs to get those skills or else she's not going to be in a really good position. And that means her kids aren't going to be in a good position. But she's a single mom. She has these two very sweet kids. And she doesn't know what to do.

I want to go back to school, but it's the time. If I want to go back, I have to get back on my time, and I don't have time. You know, when I get off work, I go pick my kids up, and that's it. My life revolves around my children. What do you think education, like, if you don't get education, let's just say for whatever reason you just never go back to school, what do you think that means for your future?

I'm always going to be where I am. I mean, to be honest. So when you say I'll always be where I am, where are you? I live with my parents because I can't afford anywhere else. And I have my kids and I work, you know, factories are not bad. I love my job. But, you know, I'd love to be above an assembly one day. I'd love to be here in this office. You know, I mean, what office were you in? We were in the office with all the engineers, the highly trained engineers and high-level managers who ran the factory. And I know Maddie could do it.

She's great at math. You know, she graduated high school with honors. She definitely has management potential. But there's so many, so many things she doesn't know. And the saddest thing is when she says, if I don't get that skill, I'll always stay where I am. I mean, frankly, that's probably a too optimistic assessment. That's wishful thinking. If she doesn't get those skills, there's every reason to think she's just going to fall farther and farther behind. I came to think this is one of the core challenges of American manufacturing, one of the core challenges of the American economy.

How do we get people with low skill, who this country used to have a lot of work for, how do we get those people to become the high school people? How does Maddie get to become Ralph? That was Adam Davidson and Hana Jaffe-Walt. And I am back with our helicopter fixing economist, Julia Pollack. Julia, what does this dichotomy between Maddie and Ralph and the story in general tell us about the economy? So this story is really about something that two very prominent economists, Claudia Golden and Larry Katz, have called the race between

education and technology. So basically, over the years, we've had this technological change that has been what economists call skill biased. That means that it has replaced the jobs for people without formal training and education, but it has actually made better jobs, higher paying jobs, very productive, specialized jobs for people with a lot of training and education. I mean, that is the Ralph Maddy split right there. Exactly. And there's been a hollowing out of sort of the jobs in the middle that are basically now done by computers and software. And when this happens, it creates something known as structural unemployment. So two of the main kinds of unemployment in the economy are cyclical unemployment and structural unemployment. Cyclical unemployment is unemployment that just follows the ups and downs of the business cycle. So like losing your job during a recession

because of a recession, that is cyclical unemployment. But structural unemployment, that happens when there is a mismatch in the economy between the skills workers have and the skills companies need. Julia, would you mind defining structural unemployment for us? So structural unemployment results from industrial reorganization, typically because of some technological change. It is because some new technology has arrived that makes some kinds of workers more valuable and perhaps makes others obsolete. And structural unemployment can be a really, really tough problem to solve. I mean,

when workers have developed these skills and all these years of experience, and suddenly companies just don't need those skills or those years of experience at all anymore. They need a totally different set of skills. Like, they don't need the Maddies anymore. They just need a bunch of Ralphs. It can put all of the Maddies out of a job. And structural unemployment can just be really devastating to workers and to whole communities. I mean, we've seen this happen when manufacturing jobs moved overseas, right? I mean, it just, it can decimate entire communities for generations. So I think what the work of Claudia Golden and Lawrence Katz, for example, shows, though, is that it doesn't have to be that way. And that's really, I think, what we need to

focus on doing, is giving people like Maddie. Maddie in that story clearly has a lot of soft skills. She sounds like she is really devoted and reliable and hardworking. This is someone who just didn't have the opportunity to get the kind of education that you need to succeed, but seems like she actually would be, you know, quite open to receiving that education. If there were some support, like childcare support, if it were cheap and affordable and easy for her to do so.

Well, I actually have an update on Maddie, and she did eventually go back to school, and she now works as an accountant. There you go. I think with the growth of more and more online training programs that are affordable and convenient, perhaps we will see more people like Maddie find a way to get some marketable job skills that allow them to grow and thrive. through marketable job skills that allow them to grow and thrive. We talked at the top of the show about this idea of a balance in the labor market, this balance of workers and jobs. But there can be another issue in the labor market when this balance gets thrown off, and that is what happens when companies cannot find enough workers to fill the jobs they have and to fill the jobs they need to grow. This can happen because

of something economists will sometimes call a tight labor market. That is just a labor market where unemployment is really low and companies are competing for workers. It can also happen, though, when there's a mismatch of skills. So when companies need workers with certain skills and they can't find enough of them, Or it can happen in low wage jobs that are especially grueling and really difficult. And this can cause all kinds of economic issues. That, in fact, is at the heart of our next story. I actually reported this one with Cardiff Garcia back in 2018. It was a Planet Money Indicator episode. For it, we visited a farm in Ventura, California, that was having trouble finding enough workers. That story, we visited a farm in Ventura, California that was having trouble finding enough

workers. That story after the break. Hey, everybody, before we get back to the show, a quick plug for something else. So a couple weeks back on Planet Money Summer School, we talked about the beast that is the business cycle, the booms and the busts and how devastating that cycle can sometimes be. The economy could be booming for a few years. Stock market is up. People are finding jobs left and right. And then every few years, we seem to then have the opposite. The question is, why does that happen? That is economist Atif Mian.

You heard him on our Planet Money Summer School episode, Booms, Bus, and Us. But Atif had a lot more to say about the business cycle and why it does what it does. And a lot of it, we just couldn't fit in the episode. So we are offering an extended version of that interview for subscribers to Planet Money Plus. And you can hear that in the episode we released just before this one. If that is you, if you subscribe, thank you, thank you, thank you for your support.

If it's not, it could be. There is a link in our episode notes where you can subscribe. It smells like celery out here. Yeah, I know. You definitely get the, it's kind of nice where we are today because we're really close to the ocean. So you get a combination of that sea air and a little bit of celery hint.

So pretty nice spot to be. That pretty nice spot to be is a celery field in Ventura County, California. We were there with Tom Dierdorf, his family has owned farms in that area for about 80 years. It's like an ocean of celery. Yeah, no, there's probably 80 acres of celery here in the field that we're at right now. Really? So that will all get harvested in about two and a half weeks. By hand? Yeah, so every single stalk of celery needs to get cut by hand.

And those hands are getting harder to find. And dollar for dollar, California is the biggest agriculture economy in the country. Almonds, oranges, avocados, salad, berries, and yes, celery. They're all big business out here. And that big business is having some trouble.

Tom Deardorff says finding workers to harvest these crops has been getting tougher and tougher. We're definitely on a downward trajectory. Each year there is less and less availability and the opportunity to attract workers gets more and more difficult every year. In the middle of the ocean of celery, there is a crew of about 30 workers. They walk in a row in big straw hats, hacking off celery stalks and tossing them onto this motorized platform, which stretches across the field and chugs along behind them. They're so fast. It's really cool. They are. It's a skilled position that takes a lot of years of experience to be able to perform at this level, and obviously you can see they've mastered it. On that moving platform,

another worker cleans up the celery stalk and then packs it into a box. Alex Martinez is the harvest manager out here, and he shows us his celery blade. It's a 12-inch Dexter stainless steel machete that is then cut about four inches from the top, turned, and re-welded back to it. Oh, this is like a custom job. So, yes. A lot of crops can be harvested by machine, crops like wheat, corn, potatoes. But most fruits and vegetables aren't quite uniform enough to be harvested like that. For the most part, they have to be harvested by hand. It is really hard and dangerous work, 10-hour days swinging a knife in the hot sun. enough to be harvested like that. For the most part, they have to be harvested by hand.

It is really hard and dangerous work, 10-hour days swinging a knife in the hot sun. And when the job market's strong, like it has been for the last few years, these workers have a lot of other options. They move into whether it's landscaping jobs, construction jobs, food service jobs. Whenever there's an increase in demand from the general economy, workers generally migrate away from farm work into other areas. So Tom Deardorff has had to compete for workers. He's raised their pay by actually quite a lot. Back in 2006, working the celery field paid about $8.70 an hour. Now it pays more than $21 an hour. So pay has gone up by more than double. And that is way faster than wages have grown in most of the country. Now, we are well aware of the criticism that's been around for a while that the agriculture sector relies on underpriced labor

and in particular on undocumented workers who take very little money for backbreaking work. We couldn't speak to any of the workers on Tom's farm, but Tom says his workers all are documented and that even doubling wages hasn't solved the labor problem. We've shifted away from the most labor-intensive crops, so things like vine-ripe tomatoes we no longer grow anymore. You don't grow them at all because of labor? Correct, yeah.

That program alone took about 400 workers. And so we just got to the point where we could no longer find a steady supply of labor and decided that we just needed to get out of that business altogether. Deardor Farms also got out of strawberries. Instead, Tom has gotten into leafy greens, things like kale, cilantro, broccoli, and celery. They require fewer workers and can be at least partly automated. Where Tom used to hire about 600 people every year, now he hires around 200. But even finding 200 workers has been hard. So Tom made another change. We've also shifted a large amount of our production down into Mexico. So you shifted production of a big chunk of what

you do away from the United States, and now it's being made in Mexico because you couldn't find workers. Correct. And Tom says when this happens, it hurts the local economy. Fertilizers and boxes and drip tape, different things that we're using, we're now acquiring those in Mexico rather than up here. So the jobs related to those services, those vendors are now in Mexico rather than Ventura County. How hard was it to make these kinds of decisions based on like what you were seeing? I mean, if I was looking at spreadsheets all day long, it was a really simple decision and one we

probably should have made five years before we made it. But I mean, these are ranches that my great-grandfather farmed and we'd rather keep them active. But the economics and the politics of it are suggesting that we do otherwise. So Tom keeps doing what he can to attract workers, including using that little motorized platform, because it means that the workers don't have to carry these giant boxes of celery across the field. So this machine is like kind of one of the ways that you attract the best people? Definitely, yeah. No, you're looking for a competitive advantage in the labor market and this is one way to do that, to provide a work environment that is safer, it's more efficient, and it's just slightly easier than what may occur in somebody else's field. Do you worry

that one year you're just not going to be able to produce whatever it is that you're aiming to produce because enough people just don't show up? Yeah, we try and forecast that a little bit and we reduce planting sizes and we spread things out a little bit and readjust based on what we feel the labor availability is going to be. And then we're constantly looking for innovation to get us the same production with less people. So we kind of attack it on two fronts. Tom says his business has become this constant calculation of how to harvest more with less, how to get more crops out of the ground with fewer hands. Because in spite of everything, the harvesting machine, the higher pay, the different crops, his turnover rate keeps growing.

Fewer and fewer of the same workers come back to his farms every year. All right. We are back with our labor economist extraordinaire, Julia Pollack. Julia, what does this story make you think? So when you have a situation where the economy is growing and creating more and more job opportunities, well, then people do find better and better opportunities. And workers migrate out of tough, dirty, physically taxing, tedious, hot, sunburn-causing jobs like the farm jobs described. And then there's a gap in the market. There's nobody who's prepared to take jobs this uncomfortable and unpleasant and unsafe at the wages that make sense for those jobs to be performed. Right. And so then businesses that need those workers to do that work that's really grueling or that's traditionally paid minimum wage, they will often start offering higher and higher wages

to hang on to their precious workers. It's in their interest. They need to incentivize people to stick around and also to work extra hard. This, in fact, brings us to a really cool concept in economics, efficiency wages. Julia, would you mind defining efficiency wages for us? Efficiency wages refer to the case when employers pay higher than the minimum wage needed to fill those roles. In order to retain skilled workers, to increase productivity, to improve loyalty. You may even get more productivity because your workers are healthier. They can eat a better diet. They can wear better clothes. Yeah, they get sick less often.

They get sick less often, right? So there are all kinds of benefits. Right. So this is a situation where it's smart and actually profitable for a business to pay its workers more than it has to. There are benefits to paying workers more. In fact, it's like kind of like a win-win. The other thing it does, though, is create unemployment, because there are some jobs where if the employers just paid them more, we wouldn't buy the goods anymore. They'd be too expensive, and we would instead buy goods from other countries. There are some industries where if the wage level gets too high, those jobs will go across the border to places with much lower labor costs. Right. And as a country, we're very used to inexpensive food. I was wondering, you know,

how much would you pay for celery before you're like, you know what, I'm just not gonna, just not gonna buy it. And there's a huge debate too too, around wages and unemployment. I mean, this is like a hot take in the... This is a very, very controversial topic. Now, this is actually the topic that got me excited about labor economics way back when I was a high schooler. So I became an intern at the Democratic Alliance, the opposition party in South Africa. And one of the first issues I was asked to explore was the minimum wage in South Africa. And one of the first issues I was asked to explore was the minimum wage in South Africa. I will never forget the face of this woman at this press conference

for our political party calling for a reduction in the minimum wage so that she could see an increase in employment and so that she could take a job. Please, please, please, we need the minimum wage to come down. Why is the government telling me that I can't work? They're telling me that I can't get a job unless I am paid, you know, X amount an hour. And that's so ridiculous because I am prepared to work for less. And I would rather have a job than have unemployment. So in South Africa, we have about, you know, 35, 40% unemployment at any one time. Whoa. So in that country, there's a clear example of a place where raising the minimum wage, largely because the population is not very skilled and highly educated, does cause enormous unemployment. In the United States,

most empirical studies show that the effect is much, much smaller, and in some places, even the reverse. Why is that? So there are a number of reasons. Many of the papers look at the fast food industry and find that when workers are paid more than the minimum wage or when the minimum wage rises, those workers become more productive, more attached to their jobs. Retention goes up. Well, thank you so much. We're coming almost to the end of class and wanted to go over just a few of the concepts that we've learned. Remember, you will be tested on this material.

There is a realish diploma at stake. So listen up. We've got structural unemployment. That is when people lose their jobs because technology evolves or demand for a certain product or service changes. There's also cyclical unemployment. That is job losses that tend to happen along with the ups and downs of the business cycle. We've also got efficiency wages. That is a moment when it becomes advantageous for companies to pay workers more than they need to.

Well, before we go, I'm especially excited about this because, Julia, I know you are a big music lover. We are doing our latest edition of Econ Songs of the Summer, Employment Edition. Julia, what is your labor and job song or songs? Oh boy. I think, you know, this year has been the year of record quits rates and people trading up and leaving unpleasant jobs is Johnny Paycheck's song, Take This Job and Shove It. Take this job and shove it. I ain't working here no more. You gotta love a country song. Exactly.

I ain't working here no more. You gotta love a country song. Exactly. I got left and took all the reasons I was working for. You better not cry. All right, class dismissed. We will see you next week when we will be talking trade, T-shirts, and we will meet an actual living, breathing relative of John Maynard Keynes. Planet Money Summer School is produced by Audrey Dilling with help from Greg Morton.

It is edited by Alex Goldmark. Engineering on this episode by Josh Newell. Our project manager is Devin Meller. I'm Stacey Venick-Smith. Planet Money is a production of NPR. Thanks for listening. And a special thanks to our funder, the Alfred P. Sloan Foundation, for helping to support this podcast.