Episode 917: Quit Threat! : Planet Money Sometimes an economy can get so strong the power dynamic between bosses and workers flips: Full employment. Are we there yet?
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Episode 917: Quit Threat!

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Episode 917: Quit Threat!

Episode 917: Quit Threat!

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Professor Shierholz, can you hear me?

HEIDI SHIERHOLZ: Yes. And I'm going to just warn you, I'm, like, on the very, very tail end...

MALONE: Of a cold.

SHIERHOLZ: ...Of a cold.

MALONE: I am on the end of a cold as well.

SHIERHOLZ: (Laughter).

MALONE: Welcome to two people with colds talking.

SHIERHOLZ: Excellent.

MALONE: Heidi Shierholz was chief economist at the Department of Labor for a good chunk of the Obama administration. She's with a think tank now called the Economic Policy Institute, which is partially funded by labor unions. And I wanted to talk to her about something that is happening in the job market right now.

Unemployment has hit 3.6%, which means that of all the people who want to work and are able to work in the United States, just 3.6% do not have a job. That is the lowest unemployment rate in almost 50 years. And Heidi says because unemployment is so low, workers are starting to find themselves with this almost, like, superpower.

SHIERHOLZ: The quit threat.

MALONE: The quit threat is good.

SHIERHOLZ: (Laughter).

MALONE: Is that a real term?

SHIERHOLZ: This is the kind of thing economists would name.



MALONE: It is, isn't it?

SHIERHOLZ: Yeah, and I'm...

MALONE: (Laughter).

SHIERHOLZ: ...Not sure what the actual name is. It could...

MALONE: You're going to look it up, and we...

SHIERHOLZ: Yes, I'll get back to you.

MALONE: Heidi did check, and her colleagues agreed this should be called the quit threat, though there does not currently seem to be a name. But the general idea is this. If I go to my boss and I say, I might quit, that threat becomes more and more realistic the lower unemployment gets.

SHIERHOLZ: The key logic of this is exactly what anyone on the street would think. It's just if your employer knows that you have decent outside options, they have to pay better wages to keep their workers, they have to pay better wages to get the workers that they need.

And we know, you know, the difference between a 9% unemployment rate and an 8% unemployment rate means a lot less to workers as far as their economic leverage goes than the difference between a 4% unemployment rate and a 3% unemployment rate. So there is definitely some nonlinearity in what moving towards full employment means to workers.

MALONE: Nonlinearity, et cetera, et cetera. This is a beautiful, mathy way of saying for the first time in decades, kind of suddenly, workers have power.


MALONE: Hello, and welcome to PLANET MONEY. I'm Kenny Malone. Today on the show, what does full employment or near-full employment actually look like in the real world? Our colleagues at NPR's business desk have spent the last few months all over the country, reporting a series of stories on full employment.

And today, we are going to hear about three of those stories - how bratwursts, cheese and the quit threat are helping unions in Wisconsin, how some workers are still being left behind and what happens when a city's unemployment rate hits 1.5%, as it has in Ames, Iowa.

SHIERHOLZ: Which is, funnily enough, my hometown.

MALONE: Wait; get out of here.

SHIERHOLZ: Nope. Yep, I'm an Ames (laughter) person.

MALONE: All right. So before we get to these stories about what's happening in the United States right now, there is this one sort of wonky but really interesting thing I talked about with Heidi Shierholz, and that is what do economists mean when they talk about full employment?

SHIERHOLZ: It's pretty straightforward. So full employment is the lowest level of unemployment you can get to without sparking accelerating inflation. And that link between unemployment and inflation might not be totally clear to everyone, so let me just...


SHIERHOLZ: ...Clarify. If the unemployment rate is so low that for employers to be able to get and keep the workers that they need, they have to raise wages higher than they can reasonably absorb, so that they then have to raise prices higher and higher and higher in order to cover those costs, that's it. That's how low unemployment can lead to accelerating inflation.

MALONE: So we are currently at 3.6% unemployment. Is that full employment? Well, this is the open debate. Heidi Shierholz, for example, says, like, look; you know, wages are starting to go up, but inflation is not out of control. So she thinks there's still room to get unemployment down even further and get wages up more safely. But some people think we are already at full employment.

This is kind of beside the point, though, because what isn't controversial is that we are either at full employment or very close, and that puts us in a moment where power is shifting from employers to workers. And here to tell us one story about that shift is NPR's economics correspondent Scott Horsley. Scott, thanks for being here.

SCOTT HORSLEY, BYLINE: Great to be with you.

MALONE: Scott, I like to think of you, yes, as an economics correspondent, but you are the person I think looks most like Anderson Cooper at...

HORSLEY: (Laughter).

MALONE: ...NPR. Does that...

HORSLEY: (Laughter) No way. I think Anderson might have some issues with it.

MALONE: Oh, I disagree. I disagree. The story Scott is going to tell us actually starts a while ago, back when unemployment was still really high. Scott went to Sheboygan, Wis., to visit the Kohler factory.

HORSLEY: They make a lot of high-end kitchen fixtures, bathroom fixtures. They - they're a big company. They also make things like lawn mower engines. The workers at Kohler are represented by the United Auto Workers union. And there's a union hall, where I met up with the woman who's the star of our show, Courtney Hering.



HORSLEY: What do you do at Kohler?

HERING: I - actually, I handle all the finished products and faucets and any unfinished brass, and I move them around to different locations.

HORSLEY: And when she started out, she was making, she told me, between 11 and 12 bucks an hour, which, you know, she thought was not a terrible...


HORSLEY: ...Salary for that...


HORSLEY: ...For that time. But as time went by, she found out that there were people doing very similar jobs to hers who were making about twice that much.

HERING: And it really did open my eyes to see what was really happening and how much of an opportunity I was actually missing compared to what I actually thought I was getting.

HORSLEY: So initially, you didn't really know. But once you knew, was it a little bit...

HERING: It was an eye-opener. It was a huge eye-opener. It made me realize, oh, man, this is a huge gap.

MALONE: So what is going on there, Scott? Why is there that huge, eye-opening gap?

HORSLEY: So a couple of years before Courtney started working for Kohler, in the midst of the Great Recession, Kohler, like a lot of employers, had adopted what's known as a two-tiered wage structure.

MALONE: A two-tiered wage structure.

HORSLEY: Yeah. In an effort to save money, the company, rather than cutting everyone's pay, says, OK, we're going to leave your pay, existing workers, where it is. But anybody who's hired from this day forward is going to get paid a lot less and maybe have worse benefits as well.

MALONE: Was this something that we saw across the economy when unemployment was higher, when employers had more power?

HORSLEY: It wasn't universal, but it was common among some big industrial companies. Some of the most famous were the Big Three automakers...


HORSLEY: ...Went to a two-tiered wage scale during...


HORSLEY: ...The recession. Kohler did. Caterpillar did. Lots of unionized industrial companies adopted this so-called two-tiered wage structure.

MALONE: Union membership, in general, has been on the decline for decades. But even for the existing union members, the Great Recession and the resulting 10% unemployment gave employers leverage over workers.

HORSLEY: Yeah. I mean, I talked to union members who were at Kohler in 2010 when the two-tiered wage contract was adopted. They didn't like it at the time, but they didn't feel like they had any power to negotiate an alternative. They were afraid to go on strike. Unemployment was sky-high. Companies were closing their doors all around. People were getting laid off left and right. And they didn't - the workers who were there at the time didn't feel like this was an opportunity for them to drive a hard bargain.

MALONE: Back in 2010, there was a lot of what economists call slack in the labor market. Slack basically just means it's easy for employers to go find someone else to fill your job. Now, of course, unemployment has been dropping for years now. And Scott says everyone's been looking for signs that this slack has gone away.

HORSLEY: And the thing about slack is if there's a little slack or a lot of slack, it's kind of the same result. I mean, if you think about your dog walking along on a leash, if there's a foot of leash dragging on the ground or 3 inches of leash dragging on the ground, as long as there's a little bit of slack, it feels the same to you and the dog.

MALONE: Right.

HORSLEY: It kind of happens all at once, like when your dog suddenly pulls tight on the leash.

MALONE: This is what it means that slack is nonlinear. When unemployment drops from, say, 9 to 8%, it's not like workers really have that much more power. Like, OK, you want a raise? There's still 9,000 people who will fill your job, and you're probably still not going to go find a job. But a drop from 4% to 3%, now that is a tightening labor market approaching full employment. Workers have actual quit-threat power.

HORSLEY: And that's what - that's the position that Kohler found themselves in last year. They had a lot of job openings they couldn't fill. They had existing workers who were defecting to neighboring factories, like Sargento cheese and the Johnsonville brats company, who are, you know, right nearby. Also...

MALONE: All of those are in Sheboygan.

HORSLEY: It's a feast for the senses, Kenny.

MALONE: My goodness.

HORSLEY: But those companies were hiring workers away. And suddenly, Kohler was in a less competitive position when it came to attracting and keeping good workers. The slack had suddenly evaporated. And when the slack was gone, the workers were in a much stronger position to negotiate a new contract.

MALONE: In 2015, the union got Kohler to close a pretty significant portion of that two-tier gap. And then, as the labor market tightened and tightened even further, they were able to renegotiate again in 2018, before the old contract was even up, and fully closed the two-tier structure.

HORSLEY: And as a result, you've now seen the newer workers, like Courtney Hering, get a nice bump in their pay. Courtney said it really made a difference in how she and her fellow workers felt about the work they were doing.

HERING: I mean, I was told, don't go in a factory. Don't go in a factory. You're not going to have a life there. It feels like I do, and I'm getting somewhere. So I could see myself being here for my career. My family's been in it for at least 40-plus years, so I like to kind of continue that tradition.

HORSLEY: That said, Kenny, we have to acknowledge there are some counterexamples. I mean, even in this tight labor market, for example, UPS just negotiated a new contract that puts new drivers on a lower pay scale than older drivers. There is a locomotive plant in Pennsylvania where the new owner is trying to impose a two-tier wage scale on employees there. That case is still in mediation.

So it's not a uniform picture across the country. There are certainly caveats to it, but the broad outline is workers certainly have more bargaining power to demand better pay and better benefits today than they did at the height of the recession.

MALONE: All right. Scott Horsley, thank you very much.

HORSLEY: All right. And Anderson Cooper may have some complaints.

MALONE: Bring it. He can send them to me.

HORSLEY: All right.

MALONE: All right. Bye.


MALONE: Full employment, or quasi-full employment, is making things better for workers, but we're just going to take a moment to talk with my colleague Jasmine Garsd about some of the problems we still see. Jasmine, thank you for being here.

JASMINE GARSD, BYLINE: Here to rain on your parade.

MALONE: I'm not saying rain. You're just...

GARSD: (Laughter).

MALONE: You're casting light on the reality of the situation.

We wanted to talk to Jasmine because for NPR's full employment series, she had been looking into unemployment within the Hispanic community. Hispanic is the term the Bureau of Labor Statistics uses.

GARSD: The unemployment rate for Hispanics is 4.2.

MALONE: That's fairly close to the national average. That seems - it seems good.

GARSD: It's at a historic low.


GARSD: It is always good for there to be more jobs, but there's layers that you have to peel off...


GARSD: ...And look a little deeper at the picture.

MALONE: And Jasmine says what that picture shows is that wages for Hispanic and Latino workers are still relatively low. Weekly median earnings are about 75% what they are for white workers. And the tightening labor market hasn't made that gap worse. It hasn't made it better. It just was and still is.

GARSD: Well, yeah. I mean, like, look; Hispanic labor is still concentrated in low-wage jobs. A lot of that has to do with educational attainment. There is still a lag. Even though it's been growing exponentially, there's still a lag. Then for immigrant communities, a lot of it is language. Depending on status - immigration status - you know, if you have an irregular, undocumented status in this country, it is going to be harder for you to go to your employer and say, I want a raise.

MALONE: And Jasmine says there's a similar point to be made when you look at African American unemployment. It is very low by historical standards, but it is still very high - 6.7% - more than double the white unemployment rate. Again, the tightening labor market hasn't made that gap worse, but it hasn't really made it better either. It just still is.

GARSD: Yeah. My point with these two numbers is that they're good. It's always good to have less unemployment. You know, 4.2% for Hispanics, 6.7% for African Americans - that's great in a historical context, but it's also indicative of other systemic problems. The tighter labor market doesn't change discrimination. It doesn't solve racism.

MALONE: Jasmine Garsd, thank you so much.

GARSD: Thank you.

MALONE: After the break, the city with the lowest unemployment rate in America.

All right. The U.S. unemployment rate is 3.6% - extraordinarily low. But there is a city where the unemployment rate is 1.5%. What does that even look like? To answer that question, here with me now is my colleague Jim Zarroli, who is a correspondent on the business desk and also has the unfortunate pleasure of sitting next to the PLANET MONEY team. We are very loud. Jim, this is my formal, on mic apology. Does that count?

JIM ZARROLI, BYLINE: That's OK. This is New York, so we're used to noise.

MALONE: (Laughter) Jim, you went and visited the city with the lowest unemployment rate in the country - 1.5%. What city is that?

ZARROLI: Well, I went to the city of Ames, Iowa...


ZARROLI: ...Which is about 40 minutes north of Des Moines.

MALONE: This is where Iowa State is, right?

ZARROLI: Right. It's a small city, maybe 60,000 people, lot of new buildings there. There's an older downtown, which is very pretty, very quaint.

MALONE: So, Jim, driving into Ames, is it - can you see that there is 1.5% unemployment? Like, are there signs that something is different here?

ZARROLI: Well, yeah. You see signs all over the place saying, help wanted, through...

MALONE: Literal signs that something is different here.

ZARROLI: Absolutely, yes. Yes, signs in restaurants and bowling alleys and bars. And everybody's looking for workers.

MALONE: Just, like, on the windows - just everywhere?

ZARROLI: Yeah, yeah.

MALONE: So why Ames, Iowa? Well, Jim says cities with research universities, like Iowa State, have tended to recover better from the Great Recession. Ames is adding jobs - good, high-paying jobs in tech and health care and other growing fields. That's part of why unemployment is so low there.

The other part is that Ames needs to attract people to fill those jobs. It is not San Francisco, though. It is not New York. Iowa has a relatively stagnant population and is not attracting people at the rate it needs to fill those jobs.

ZARROLI: So that's a combination that causes - you know, means you have a worker shortage.

MALONE: And so, sure, this is affecting the higher paying fields, but Ames is also seeing this within the service industry, like at a restaurant.

ZARROLI: Oh, yeah. When you have - you know, when you have a lot of well-paid jobs that are filled by educated people who make good salaries, you know, that tends to filter down through the economy as a whole.

MALONE: And it's worth stepping back here to note that those workers in lower-wage jobs are benefiting the most when the labor market gets really tight. Because if you're in some highly specialized, like, rocket science field, you already have a lot of leverage. If you quit, your employer is going to have a harder time finding another rocket scientist. But if your job is bussing tables, for example, your boss can go and find a new employee, train them up pretty quickly and replace you.

But at 1.5% unemployment, there isn't really a new person to go find and train up. And so waiters and table bussers in this world have a lot more leverage. And Jim says you can see this play out better than anywhere else in Ames, Iowa - in those help wanted signs all over town.

ZARROLI: So I sort of was driving down the highway, and I saw a lot of these signs. And I stopped at one restaurant, which actually turns out to be sort of a venerable institution in Ames.

Hickory Park.

ELIZABETH KOPECKY: Yup. It's Hickory Park Restaurant Company, and we're a full-service family restaurant. We serve smoked food. We also have...

ZARROLI: So I went in, and I met with one of the managers, Elizabeth Kopecky. They had a sign out front that said, help wanted - all shifts.

KOPECKY: That sign - we have never hung a sign out in front of our building ever until the last two years.

ZARROLI: But that sign says, help wanted - all positions, and you're saying that's been there for a little while.

KOPECKY: Two years. Used to be just kitchen, but now it's, like, all positions. You know, everybody's in the same boat. We last year had a call from a restaurant down the street asking if we had any extra staff that they could share. That's how bad it's getting.

ZARROLI: And what did you tell them?

KOPECKY: We didn't have enough for ourselves. That's exactly what I told them.

ZARROLI: You know, I was in another restaurant with another worker, and she was a manager, but she was having to fill in at the dishwasher, fill in at the cash register, wait tables.

MALONE: I'm imagining, like, a Dr. Seuss drawing of somebody balancing 18 different cups on, like, one finger, and then on the other hand, they've got platters and a cash register. This is what 1.5% unemployment looks like.

ZARROLI: Yeah. I mean, if you are looking for work in a place like Ames, especially if you have a good resume, I mean, you basically have your pick of job.


ZARROLI: I mean, I went into one restaurant, and I met a woman named Tanisha Cortez. She's sort of an assistant manager there.

TANISHA CORTEZ: They brought me up just to hold for a few days. I'm a manager at the other store.

ZARROLI: She had lost her job last November because the restaurant where she worked had closed. And so she went. She decided, you know, I'll look for another job.

CORTEZ: I put in applications for, actually, a few places, and they all had - they all got in contact with me.

ZARROLI: Every place got back to her and offered her a job - every place.

CORTEZ: Village Inn got to me first, so that's why I came here.

MALONE: This must be what it's like when you're LeBron James and you're a free agent. It's just - every basketball team calls you.

ZARROLI: And it is a nice position to be in, especially after the past 10 years or so and what the workforce was like. Just remember in 2010 how terrible it was. Well, those days are gone.


MALONE: Jim Zarroli, thanks for telling us about Ames.

ZARROLI: You're welcome.


MALONE: We could use your help with an upcoming episode. Our colleagues on the podcast Rough Translation are working on a story about confidence games, and they would love to hear from you. You can send them your story about getting conned by emailing roughtranslation@npr.org. Just make sure you use the subject line Cons - C-O-N-S - and it may end up in that episode.

Today's episode was produced by Liza Yeager, Darian Woods and Rachel Cohn. Alex Goldmark is PLANET MONEY's supervising producer. Bryant Urstadt edits the show. NPR's business editor is Pallavi Gogoi. And a very special thanks to her and her team for pulling together this fantastic full employment series. You can hear more of that at npr.org.

If you'd like to support PLANET MONEY, the best way is to rate or review the podcast, or even just share your favorite episode with a friend. That would be wonderful. I'm Kenny Malone. This is NPR. Thanks for listening.


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