Business opportunities and challenges

Mark Gould:

Okay. Welcome back to our next panel discussion. Since we’re starting a little bit late, I will keep my introductory comments brief, but first I’ll just introduce myself. My name is Mark Gould. I’m the First Vice President, Chief Operating Officer, here at the Federal Reserve Bank of San Francisco and it’s my pleasure to be up on the stage with these distinguished panelists, and also to have enjoyed the conversation already during the other sessions today. I’ve found it really interesting. So I’m going to introduce my panelists and then we’re going to jump right into it and try to save plenty of time at the end of this for questions. So our panelists today are David White, right to my left. David White is the national executive director of SAG-AFTRA. That’s a lot of letters, but you can think of it as the Screen Actors Guild. That might sound more familiar.

David’s in Los Angeles, and he serves as one of our San Francisco head office Board of Directors. And then Pat Richards. Pat Richards is the CEO of Select Health, president and CEO of Select Health in Salt Lake City, Utah. Pat is the Chair of our Salt Lake City Board and I’m really happy to have you as well. Rosemary Turner, the recently retired President of UPS of Northern California. On behalf of everyone who shops online, thank you for getting all of those packages to our front doorstep, really appreciate that, and aside from having done that for many years, she also serves as the deputy chair of our head office Board of Directors here in San Francisco. So, great to have you. And then Chip Childs from our Salt Lake City Board. Chip is the president and CEO of SkyWest Airlines, a regional airline that flies for a number of the majors, and so great to have you as well.

I’m going to just get things started with a question and David, I guess I’ll just turn to you first, which is, in the invitations for this event, we described a hot economy as one with tight labor markets and prolonged solid growth, which I think appears to be the case for the U.S. economy in 2019, does that seem correct from your vantage point, in your business and industry? And what do you see as the main upsides and downsides of operating in this kind of hot, high pressure economy that’s been described today?

David White:

Sure. I’m so grateful to be here and to have been able to hear the comments that have been made and what I have in my mind now is a reaction to so many of those comments. Yes. From the perspective of the industries in which I work and my members work, there is a hot economy. For SAGAFTRA, the short version of that is we’ve got about 160,000 members worldwide who work in four different industries, entertainment, like film and television, advertising, so if you think about the commercials that you see on television, music, and broadcast news. When I think about the industry, I’m just going to lump all of that into the entertainment industry, and right now we are absolutely experiencing a hot economy because of, shorthand, Netflix and Amazon Prime and all of the changes that are about to happen when Disney Plus unloads all of its properties onto a platform where, for any of you who are parents or parts of a family or just moviegoers, you’re probably going to buy it.

All of that has created a great deal of work, a great deal of movement, and there are positives along the lines of much of what we’ve heard today, associated with that. There are definitely negatives as well, and working in a hot economy, from the perspective of someone who works at a union who is charged to protect people. So, that’s what we do. We are charged to protect people in this changing industry, and the changes are challenging. So one way to think about entertainment is all the things that we like about—I’ll beat up on Netflix right now—Netflix, we are actually buying into some of the dark side that we’ve heard about.

One way of thinking about that is media used to chase a large audience, mass media. So we used to have three channels: ABC, NBC, CBS, and any program that was placed on there was attempting to get big market share. It’s now the opposite. So now production is looking for niche audience. It’s attempting to add just one more subscriber that is not already subscribed to Netflix. So in the past, a production budget—so think about a television show—needed to spend, just for easy math, say $1,000 in order to produce the show, and then everyone shared from that thousand dollars, so you get $100 and you get $30 and you get this and you get that. Now, it’s hard to justify for a niche audience expending $1,000, so now they spend $100. Same number of workers, same number of people pulling from that pile, but now they’re pulling from $100 and so I used to get $100 as part of my share or even $50 and now I get 10 or I get 5. I’m doing the same work. In fact, I’m doing more work because now production is exploding worldwide, and so I’m being forced to travel and I spend more time away from my family, et cetera.

So that is a microcosm, I think, that encompasses in ways that, if questions allow, I can expand upon further, some of the downside of what we’ve seen. The net effect of is in our industry we have people who are struggling to make a living. So when you think about the Screen Actors Guild, you think about names that you know, the stars. That’s a very small percentage of the people who we represent. We represent people who struggle to get into the middle class and who are constantly struggling just to do their job, which is to create stories so that the rest of us can watch them and live vicariously through them, and then we go to dinner. Yeah, so we are experiencing the downside of that, and I’ll just say before I pass this along, as an employer—we have 15 offices, but I’ll take Los Angeles—
our employees are, the top of our employees are being poached by larger companies. The middle class and the lower ranking of our employees salary-wise are living in a city where asset prices have gone up, housing has gone up. They are being forced to live in places that are farther and farther away from the office. As an employer, we are doing our best to respond to that, and it again mirrors some of the issues that have already been mentioned in these great panels.

Mark Gould:

Right, thanks. Pat, how are you and Select Health experiencing this hot economy?

Pat Richards:

Yeah, well I think with the hot economy, healthcare—I work in healthcare and Select Health is a not for profit health plan. We’re a wholly owned subsidiary of the Intermountain Healthcare system that serves primarily Utah into Idaho and into Nevada. Healthcare is certainly a large part of the economy, and health insurance is the specific organization that I lead. With that, I think there’s a couple of things. With the hot economy, and we’ve talked about this in our local board meetings, it is really tough to find and hire and retain employees, and many of us who work with software developers, the health fields, nurses, physicians, pharmacists, we run a big call center at Select Health, call center jobs. There’s a lot of competition for hiring and it’s a very labor intensive business. So I would say that’s one of the aspects of the hot economy.

And what I feel really good about, if you will, is that with this, we’ve really thought about the importance of our employees, and with the hot economy and with the competition for people, I think the good outcome of this is we have made great, great investments in our employees. We’ve also done many of the traditional things that other people that are having trouble hiring or recruiting. I mean, there’s recruiting, there’s signing bonuses, there’s training, there’s leadership development. There’s all of these things that I think a lot of people who are competing for workers are doing, but the one thing that I would like to highlight about Select Health, we have really built and focused all of our company on building a culture, a culture where people want to work with us, a culture where people want to stay with us, and in fact, I’ll just share a little story.

Yesterday we had a service awards program for people at Select Health who have worked there 15, 20, 25, 30, 35, 40, and even 45 years, and we recognized 80 people at our company yesterday, and I asked people, I said, “Why do you stay?” Because so often people come and they leave and they come and they leave and they said, “Well, because this is like a family. Somebody cares about me.” They said, “I feel valued as an employee.” Many people spoke about what we offered in terms of over the course of their careers. They said, “You know, I started in an entry level position. I had an opportunity to move up.” Most of the people I talked to talked about tuition reimbursement, helping people go back to school, get education, but the one piece that was also striking to me— you know a lot of times people—you don’t even necessarily even want to tell somebody you work for an insurance company because you get a little vilified.

I used to go, “Yeah, I remember when.” But one of the things we’ve done, we’ve really focused on the connection to a purpose in work. And Rosemary and I were talking earlier today that—I forgot it was who mentioned that fourth grade reading was a challenge. One of the things we do with our employees is we have paid community service time so we can give back to the community. Our corporate mission is to help people live the healthiest lives possible through insurance, and one of the things that we do though is say we need to be involved in the community, and one of the things you do a lot at insurance companies, there’s a lot of reading and there’s a lot of math. So what many members of our teams do is they go out and tutor at local title one schools for reading and math.

So I think we found a way to build a culture that’s very service oriented, that’s very community oriented and that has helped us recruit and retain people at maybe. We don’t even pay the salaries that some of the others do. So I think that’s how we’ve overcome probably one of our biggest challenges. The other challenge that may come up later in the Q&A session, we worry desperately about the cost of health insurance and health care, and we know that that’s having an impact on city, county, state government, individuals, companies, and that is our focus right now, is trying to do everything we can to make healthcare more affordable. So it ties back to some of what we talked about this morning, the importance of having a good job, having a meaningful job, a sense of purpose, having access to education, and access to health care. So that’s how we’re trying to overcome some of the challenges we’ve heard about earlier today.

Mark Gould:

That really resonates with me, cause it sounds an awful lot like the culture that we try to build at the Federal Reserve, as well.

Pat Richards:

It does.

Mark Gould:

Kind of family, with a real emphasis on building long-term capability for everybody. Helping everyone to reach their full potential. Rosemary, how about UPS? Talk a little bit about that.

Rosemary Turner:

I’m glad you mentioned UPS, cause I hope some people have heard of UPS, but to speak quite honestly to the hot economy, I would use the word robust in the logistics field. However, I would say that we have been thrust into an expansion that we didn’t always expect to have to make endeavors as soon as we did, and I’ll speak to that in different frames. I was privy to be part of one of the first automated facilities at UPS, where now we can actually move 100,000 packages per hour. In order for us to be able to do that, it’s truly about customer demand, and who would have ever thought that you would want your toilet paper delivered to you instead of going to the grocery store to pick it up? However, that is what we are facing in today’s world where no one basically wants to do those mundane task, and so consequently, it has been a robust expansion for transportation and logistics, period. I’m very proud of UPS, because having been with them some 40 years. It was 40 years, three days, no.

But having been with them so long, I’ve seen the transformation that’s actually taken place at UPS, and what we have, when I was a service provider, the only thing that mattered was I was there to make your pickup by two o’clock. Today, when I went or did visit clients, now I have to sign an NDA, because they are sharing their five year goals with me and how we are going to solve for those problems. So we’re much more than a goods movement. We are, to the point that was made earlier, a service industry, and we knew that after the year 2000 that there would only be three industries left in the world. Healthcare, services, and logistics, and so when you speak of the partnership and the collaboration that I think has to take place. And the last panel was very passionate.

All the panels have been extremely passionate, and I felt for a minute, why did they put big business at the end? Because everybody wants to basically shoot us, because profits has been referred to and is somewhat of a negative term on many levels, but with that, UPS continues to make the advancements in order to sustain and fulfill customer demand. I hate to go back to it again, but it used to be on the shipper’s demand. It is now the customer’s demand. You would like it delivered between two and four, and I was speaking earlier of one client that I met with that said, “Rosemary, I’d like your service providers to put on a white glove when they make our delivery,” and it’s always been, as a president for UPS, I never said no to a customer. I said, “I would never say no to you, but exactly how much do you want to pay for my service provider to put on a white glove and present your package?”

And that is what I mean by problem solving and the evolution of the growth, quite honestly, of logistics. It has become a part of the experience, and the ability for a customer or client to grow their business, which has been extremely exciting, and so when I speak of excitement in retirement, I don’t mean that I didn’t love what I do, cause I could speak about it and talk about how UPS has changed lives, grown companies. When you think of, and if many of you recall here, that little cow box that used to come to your house with your first computer in it, Gateway computers. When I lived in Omaha, Nebraska, they were in Iowa. They started in a garage, and we started with them. We grew while I was in Omaha to picking up 15 trailers a day. So we’re talking the evolution of UPS, becoming problem solvers, and actually offering an awful lot of solutions to the way the world actually works.

Mark Gould:

Really interesting. Chip, talk to us a little bit about how you’re experiencing this economy at SkyWest?

Chip Childs:

So let me give a little bit of context, kind of a little bit about what we do. We’re a regional carrier. We have about just under 500 aircraft. We fly geographically, all over the United States for four primary partners, Delta, United, American, and Alaska. We don’t do anything with fairs or anything like that. We’re just purely fulfilling contracts with these major carriers to go where they want us to go. We fly where they want us to fly, but we have a very big footprint across United States. So we actually had some of these—I wouldn’t call them problems, but opportunities—hit us probably a year or two before the economy started to get really robust, when all of the baby boomers that were the pilots at the major carriers, started to retire at the age of 65, and all of a sudden there was this major, major demand for pilots in the United States.

I could bring in statistics and it’d be staggering. You do the worldwide statistics about becoming a pilot, worldwide, as UPS knows, it is unbelievable the demand for this craft, and so we had to do some things differently than we had done. We’ve been around for 47 years. We had to do some things differently than we’d done the previous 40 years because after 9/11 there was pilots everywhere. The capacity was reduced, and for a good 10 or 15 years, there wasn’t a whole lot of differences between what the demand was and what the supply was until just recently with all of these retirements. So we had to look at it entirely differently and we attacked it in a number of ways. First and foremost, we usually had college applicants. You don’t need to have a college degree, which is an important part, I think that we should take away from this room.

You don’t need a college degree to become a pilot, and a pilot is a very lucrative profession. One at which you can literally spend some time outside of college to get your licenses, get some training up to 1500 hours, and it probably has one of the greatest ROIs on your investment, including a medical doctor today, but there are some gaps in getting pilots to where we need to be. First and foremost, we’ve talked a lot today about various fiscal policies or lawmakers and their ability to help with this problem. We need to have some assistance, primarily getting people to be pilots, and we talk about demographics and everything. None of that matters. If you can fly an airplane and do it safely and we can train you, all of that will go away, as long as people can get to the end point where we can get you in the cockpit to where we can train you, and it’s a big, as all the social conversation we’ve had today, I think that there’s a tremendous opportunity for us to do that.

That having been said, instead of talking about pilots, have their flight time, graduated from college, talk to them then, we’re now in high schools today. We’re in a lot of high schools, a lot of colleges, but a lot of private institutions, where we’re starting to even use Salesforce as a database of people who want to be a pilot down the road, and our databases are big. We track them, we nurture them long before they come to SkyWest. So it’s not just about taking really, really good care of what I would say, the best aviation professionals in the country. That’s paramount, and we’ve done a lot of things to help with compensation, those types of things. It’s also making sure that you’ve got the right pathway to have some predictability in your model and you’re going to have to— companies. It’s going to be incumbent on companies I think, and as this economy continues to progress, we have to do things differently where we have to reach back further, take a look at our people further, not just flight attendants or pilots.

It’s also flight attendants, mechanics, everybody, and get them nurtured and excited about joining a company like SkyWest long before they’re even ready to. We think that that’s part of what our challenges are, but I think that this hit us before this economy and it’s fared very well for us. We hire well over a hundred pilots a month, today, and provide some great opportunity to some outstanding individuals.

Mark Gould:

That’s amazing. Your system probably would have picked up on me as a kid. I’m a bit of a plane geek, looking up, trying to guess what kind of plane is going –

Chip Childs:

We would have loved to have found you, yeah.

Mark Gould:

So have you had to raise wages? I’ve the benefit of being at the end of the day, I want to knit together some themes that I’ve heard earlier. So Jason, I think it was, earlier today said he had people coming into his office when he was working for the government saying they can’t find workers.

And he said, “Well have you tried raising wages?” Can I come back down and maybe start with you, Chip?

Chip Childs:

I think it’s a total package to them, because yes, people want more money. The entry level for being a pilot is probably 200% more than what it was five years ago, and we’ve got a lot of incentive programs to help people get into our industry, but wages has been a thing. The other key thing is to be very close to what people want. Our name is SkyWest, but we’ve had good demand for our product, and next thing you know, we’re flying in and out of LaGuardia because of demand for our product, and I’ll tell you, California is an outstanding state. People want to live in California, and we found it good to take a lot of our 450-500 aircraft, and push with our partners back West to be in where people want to live.

We’ve talked a lot about where people are living in the 12th district. The beauty about an airplane is that you can live in Boise, Idaho and fly out of San Francisco, California. Pretty easy. You can commute on these factories that move in the air and that’s helpful to us, but I think what Pat even said, the number one thing has got to be culture. If you don’t have a culture, from an airline perspective, that is a very strong safety culture, a culture where you’re going to be trained better than anybody else in the country. So admittingly, we fly smaller aircraft, our people want to go fly big aircraft. We want to prepare them, also, and have that reputation for preparing them for their next career as well, and we take great pride in that. So yes, compensation, benefits, training, culture. In today’s world, you need to be agile and be providing all of that for your employees if you’re going to be successful and be able to grow.

Mark Gould:

Yeah, that makes sense.

Rosemary Turner:

Mark, you know I have expressed in one of our recent meetings that UPS just negotiated their Teamster agreement and we were very pleased about that, number one, because it stayed very quiet. It was not in the public, so it just came and went. So there was no stop and service. But one of the most imperative parts of that was the entry level for a part-timer at UPS for the last contract was $8.50. That new contract hiked up a part-time entry level to $14 an hour. And in some regions specifically mine here, we actually paid above and beyond that just to meet what the competition and what the city was playing quite honestly.

So you saw and we have seen a grave increase in wages. Your UPS driver is one of the highest paid in the industry because they do a lot. I will not take that away from them. Having been a service provider 35 years ago. What they do today and what I did 35 years ago is technically different, very different.

So yes, we have through that contract actually hiked wages and we have added, we are one of the only Teamsters where their employees do not pay for health benefits. So the UPS service provider goes into the doctor and pays nothing. Zero. That is very costly to the organization and quite honestly it’s not just UPS because Teamsters is a total organization. So quite honestly we are paying for drivers in other Teamster Unions that never drive for UPS or are not even part of UPS. It’s the aggregate of the Teamster Organization.

So we have seen an extreme uptick in wages. I also would like to just speak to the management side. Yes it is tight as we get into sector specific jobs that we need. It is our goal to take over the healthcare industry. We are, in 2020, going to start delivering health care medications by drone. We already do that in third world countries. But soon we will be delivering by drones to medical facilities and hospitals. And by the way, in rural America, quite honestly, we already delivered by drones. We have drones that sit on top of package cars. The driver stops, make his delivery, loads his drone, the drone goes out, he delivers moves on and the drone finds him and places itself back on the package car.

So while we said we would never deliver by drones and I have given a number of speeches where I said I don’t see 400, 200 million drones in the air on a regular basis, we are definitely delivering. So the impact of a hot economy has led us to higher wages specifically as I was stating in management, we will pay higher for those. UPS is a promote from within organization which gives extreme opportunity and I am a result of that.

Who started as a clerk answering the phones, “UPS, this is Rosie, can I help you?” To, the first African American president responsible for profit and loss. So the opportunities are still there, great in investment and earn to learn. So if you are a part-timer at UPS, part-time supervisor, you could actually go to school and we will pay you $5,250 per year.

So there are great benefits to coming to UPS. And I don’t mean to have a unpaid advertisement for UPS, but I do want you to know that there’s, with the wage increase we have invested in how we can further retain. As well, every corporation is interested in how they become the employer of choice.

David White:

Your drones going to have cameras? That are suddenly all over our houses, when you bring our-

Rosemary Turner:

I can’t speak to that because I wasn’t in the actual makeup of those, but like satellites that we use that would seem obvious.

Mark Gould:

All right, well I-

Rosemary Turner:

Did I say yes without saying yes?

Mark Gould:

I’m going to moderate now and so Pat you brought up-

Rosemary Turner:

That’s a presidential kind of thing. We go to school for that.

Mark Gould:

You brought up wages and kind of total the total packaging. Anything else you’d like to say around what you’re experiencing there?

Pat Richards:

Well, definitely with wages. We try to be appropriate with our wages. And we always aim for a top quartile service, lowest quartile costs of providing the services. But we also aim for a kind of a median income, if you will.

We’re very concerned about having our lower paid employees have a living wage and be able to afford to live in the communities they work. We do look at a salary compensation for virtually every position every year to make sure we’re kind of keeping pace. But salaries are one part of the equation certainly, and we probably have been running a little higher than just the national average in total. But it does come back to these other programs. We’ve put in a really active mentorship program, a program for women, especially women in leadership.

This is something that in Utah is interesting in that many women may start college but they don’t complete college. And if you see the statistics, wages for women in Utah tend to be lower than men as a gap. So we’ve worked really hard to encourage and support women and men who want to go back to school. But I would say the wages are good and it isn’t only wages, especially with the millennial population, we’ve had to become a little more flexible.

Traditionally an insurance organization is pretty stodgy, if you will. But we have rolled out things like we have a lot of people that work from home now and that actually helps in the rural areas because people can work from a rural area, with the internet capability. We’ve gotten more flexible about dress code. We’ve essentially eliminated it. We’ve gotten very flexible about, I think one of the most creative things is we’ll let people, it’s called the On-Deck Program.

If they’re interested in learning about or moving to another job within the company, they can try it for like 12 weeks. They can shadow somebody. They try it, they experience it, and then if they like it, they might formally apply for a new position because we’re really encouraging people to advance within the company. So On-Deck is very cool.

And the last thing that we’re doing is trying to look at, we talk about economics sustainability for people and often when people come in they’re not thinking about retirement, they’re young.

And we’re really doing a lot more education with our employees about the importance of a sustainable financial future. Being sure that you invest in a 401K plan, for instance. We explained to people how that works. There’s a company match. So we’re doing much more education about not just today’s job and the wage, but the future potential.

Mark Gould:

Yeah, that’s great. This is, these are themes that have come up in a lot of our board meeting discussions as well that the wage statistics, the average hourly wage statistics may not pick up a lot of things. A lot of things that you’re talking about, investments you’re making in the end employee experience, but that they matter for recruiting the best talent.

David, you have a slightly different perspective on this being the head of a large labor organization, what’s your perspective on this?

David White:

We have two narratives. One is along the lines of what we’ve heard, we’ve raised, so as an employer, we’ve raised wages. We have a terrific benefits package, health plan, we still have a pension plan.

However, the members we represent and we’re in four industries now are losing their bargaining clout. And I think this is one of the themes that can be ever more teased out as we have conversations within the Fed family.

One result of the hot economy is market concentration, something that Heather talked about. And market concentration for companies based in Silicon Valley which are now attempting to eat the companies based in Hollywood. Along with many other industries but you can see it very plainly in entertainment and music. They are using public money and often are attached to public companies or are themselves public companies. The significance of that being every quarter going to shareholders and saying more revenue less than cost.

So now what you have are these behemoth companies with tools that allow them to have ever more transparency in micro cost that add to the cost with an absolute demand to find ways to reduce that cost. And even the top of the members who we represent, even the rich and famous are losing their ability to negotiate against those companies. And everyone else relies increasingly on our collective bargaining agreements.

Now when I go to DC and I’m talking with folks at the AFL-CIO or we were talking with people in state and county federations. They are singing the same tune that they’re members, everyday workers in industries across the country are losing their bargaining power.

And it runs parallel to what we’ve just heard. And we’ve had this conversation within our boardroom, which is even members from the community, certainly members from the business community come in and state can’t find workers. And the only way that we can find workers is we’ve got to raise wages, have better culture, have benefits package, packages and other really innovative programs to attract them to our business and to keep them there. And that is true, but there is another lane going on and it is, I believe the result of the hot economy and the disproportionate benefits that are accruing to those at the top.

Including the companies as well as the top one to 10% of wage earners. And so we’re feeling that and it has an absolute direct impact on our strategy as a union. How do you protect people in that environment without suppressing with that, we’re finding ways to make sure that you’re not suppressing for those individuals, those few individuals who still can bargain on their own. But how do you make sure that through collective action we are re-introducing balance wherever we can because it feels imbalanced and it feels imbalanced across a number of industries and it’s not just artists or news journalists.

We’re seeing it and we’re hearing it from folks in industries and in geographies across the country.

Mark Gould:

That’s interesting. I mean when you think about businesses, most businesses would, I would think, enjoy operating in a hot economy. There’s more customers, there’s more activity. But it brings along with it some other challenges and we’ve talked about recruiting and wages. I’m interested in what other challenges you might be facing. One of the things I, a couple of things I heard earlier in the discussion around housing challenges and also educational challenges and trying to find the right workers with the right skill set. Anybody like to speak to any of those?

Rosemary Turner:

You know what? One of the major things, and I’ll speak to management at this level, is the relocation. Getting someone to move from say Omaha, Nebraska to San Francisco or to New York is becoming more and more of a concern. You know, you would think that it was totally about the wages and the environment and the cost of living. But now it is more about, I don’t want to leave my family. I don’t feel that I have to leave my family. And by the way, why can’t I do that job remotely?
Which adds a whole new set of issues into what it means to give benefits to an employee and to give them opportunity. And so what we have ventured into is we are plucking some of our future leaders, sending them off to countries and giving them exposure. Different countries, Asia, China, Hong Kong in the like, out of the US quite honestly, so that they can get that exposure. That comes with a cost, but an extreme investment in how we build for the future.

But I will say that as surprised as I was to move from Sacramento to Omaha, Nebraska where I also was in charge of North and South Dakota. And if you’d told me I’d ever go to Fargo, North Dakota, I would’ve told you no. But I have been there numerous times and have the frostbite to show for it.

It was an unbelievable experience. And what we’re really trying to do is to accentuate the positives along with giving a package such that employees understand that this is for the future and how you can grow through these opportunities. Yes.

Chip Childs:

I’ll add to that just a little bit. I think, because it’s an interesting question, this hot economy question. Because sometimes I think it’s just a different economy. It’s not hot, it’s not warm or cold, it’s just, it’s a bunch of things now. You know, when we’re delivering packages through drones, this is a different economy. And from that perspective, you wonder with what David says and Netflix and all this other kinds of, it’s just we’re going into an unchartered territory economically where the variables that you have to consider in all of our questions are completely different than what they have been in the past.

That having been said along those lines, you talk about education and we have seen that the traditional education systems, I.E. colleges, are just not evolving fast enough with this different hot economy.

And you know, as much as we work significantly with some amazing colleges to produce aviation professionals, we’ve had to go and invest in others that are more agile, nimble and can provide what the market’s demanding.

So this evolution of what you’re doing today, unfortunately in education, we talk a lot about this, the social issues today and education is not considering some things they can do to help fix it. You know, the federal government is not doing some things either. I mean quite candidly, you can go to college and get financial aid, grants and assistance to major in a number of things as long as you’re in college.

But if you want to be a pilot, that has one of the top ROIs in the country today, you can’t get any federal grant money. So there’s an evolution educationally. It’s got to go all over the place to help keep up what I think is what this different economy.

Mark Gould:

Interesting. So since Rosemary, since you brought up Fargo, North Dakota.

Rosemary Turner:

Yes. Love it there.

Mark Gould:

Let’s talk about geography. I mean, in any of your areas, are you seeing differences between herbal, urban and rural in terms of growth or employment or other challenges that you’re, that you’re dealing with?

Rosemary Turner:

I would say specifically urban from suburban, more people are moving inward and with that urban relocation that is happening in the world quite honestly. I think it’s a plan to move us in for infrastructure reasons and of course transportation comes to mind. We do see differences in that. And I’ll just speak to specifically this area. Which I’ll never forget when my HR manager came to me and said, the only way that I can fill the positions in San Francisco is for me to bus from Modesto two hours.

So I immediately looked at him and said that’s not going to happen. That’s not going to happen. In order for Christmas, which we have just made public in the news recently as we do every year, we plan to hire 100,000 more employees that we’ll work the season for us, approximately Thanksgiving to the end of Christmas. I would like to give a real positive of that hundred thousand we will probably retain 36%. They will go on to get a permanent job at UPS. And that’s one thing that we’re not really saying in that hiring figure.

But in terms of urban, we do see that we have to pay more than we would and with my example of Modesto. Modesto, I can still get away with an employee that will—well now they’re contractual of course, so they’re making the $14—but they are much more apt to stay with UPS longer at that $14 than even in the urban. In the urban, I have to hire you and add incentives that take you to 18 even $20 an hour in some particular areas.

That doesn’t happen in Fargo or you know, some of our Midwestern States, the East coast, which I also came from, has been doing that for some time. And so now we’re looking at Earn to Learn credits. I want school. I want all of those things in order to stay with you.

David White:

Just to feed off of that and along the lines of what Chip was talking about with governments, federal governments, local governments, state governments, making different choices. There’s an urban rural divide that we see but it doesn’t consistently break down along those lines. We have an employee who is one of the executives at SAG-AFTRA who moved from Los Angeles to Texas and his income basically —well same income— but you know, his purchasing power and everything about that just shot up. And he’s in the city in Texas.

I grew up in Kansas city. If I had the salary that I have in Los Angeles, in Kansas city-

Pat Richards:

You could live like a King.

David White:

I’d live better than I live in Los Angeles for sure. So some of that just relates to these mega global cities versus mid sized towns, but a lot of it has to do with tax benefits, how the school district is, whether or not you’ve got to go to a private school or public school, depending on what it is that you want out of the school district and for the experience for your child.

And so many other issues that play into that. So there’s a rural urban divide, but there’s also lots of other divides that are, I think, geographic.

Mark Gould:

Yeah. Interesting. I want to pull on this thread. I really liked the way you phrase this Chip of, it’s not necessarily just hot, it’s just totally different. It’s a different economy. I think Yogi Berra said it’s hard to make predictions, especially about the future. But we do have some data points to think about. So we’ve got the economy we’re operating in now and then there was the kind of the 90s that high growth period in the 90s. When unemployment was also very low, but growth was faster.

How does this, for those of you who have that kind of comparative background, how does this compare to that last period?

Chip Childs:

That’s so long ago.

Rosemary Turner:

Yeah, I was going to say, I don’t remember that man.

Chip Childs:

I mean, I guess I’ll take an initial crack at it, may not be the smartest. But I was in working for an accounting firm at that point and my life was just one IPO after another and that’s what it was. I was always confused by that where’s all this money going? This one’s a little bit different, it seems to be a little bit more logistical with a little bit more backbone in structure than what that one was.

It seems like there’s more capital available today, you know, some people would even call this a little bit of a hot labor market in a scared economy. Because, I mean the Fed asked me every single month, you know what is your decisions about hiring and capital investment? What’s the tone? What are you hearing? That type of stuff. And there’s some nervousness and it might be the political environment probably, you know, if you will.

But you know, I think from that perspective it seems like there’s probably more capital available that may be held in reserve than there was back then. But it seems like this one, it just feels, I’ve got no data points, but it certainly feels, given what our business experience is that it seems a little bit more stable and solid than the stuff that was going on back in 99.

David White:

In 99 or in the 90s?

Chip Childs:

90s, 90s, exactly. I’m sorry, that’s what I meant. But in the 90s it seemed like they were throwing money at stuff that really had no economic engine that you’d say, that’s going to work out someday. There was a lot of that and it doesn’t seem like there’s a ton of that. I think people are a lot more measured in what they’re investing in today typically.

Rosemary Turner:

I’m going to take a stab at that and say back in the 90s our investment was more internally focused. Whereas with this economy currently we are much more capital invested in facilities, efficiencies, automation, equipment, purchase of 14 new 767s. And we’re looking on the mark to spend more or buy more. Two billion in equipment and upgrades.

Back then I believe it was more education and understanding of our employees. And we were all just on the cusp of what do we want to be when we grow up and how are we going to change. Because we thought that was a big change, but really it wasn’t a big change. So we were investing in a lot more training. We spend $5 billion a year on a training of management and non-management.

So there was those continuing programs, and as I said at the beginning, robust, we were kind of thrust into transfer into expansion because we could not handle the ecommerce boom that is happening. Just to give you an idea on that, in 2017 it was at 28%. 2018 it was at 24%. This year the expectation is not as high at 20.7%, but it will still be extreme because you will start ordering as you’re coming off of the elevator whereas you used to go to your computer or wait until you got home. So, you’ll order five packages while you’re standing and waiting at the stop sign outside, stoplight. So, the investments were different and there’s a need for continual innovation. If I had to put it in a nice compact, I would say there’s much more innovation for problem solving in this era.

Mark Gould:

Okay, great point.

Pat Richards:

You know, I think as I reflect back, I agree there was a lot of investment and heavy investment, but we also saw the productivity gains that came with the internet. I mean huge period of productivity. More recently it seems that there’s still a lot of speculation. There’s a lot of money. People don’t know where to invest it. So, they’re not demanding really big business plans, but we have not seen the productivity over the last decade. I do think though, as Rosemary said, we may be on the cusp of a new wave of productivity enhancements. And I’m thinking even in our kind of stodgy insurance industry, it’s like Chip said, we’re changing the way we work, becoming much, much more consumer oriented, investing very heavily in digital and consumer tools, and at the same time helping our employees transition from old ways of working to new ways of working. As we think about the use of data, predictive analytics, as we get into the era of using more artificial intelligence to identify people, for instance, that might be at high risk so we can intervene earlier, better tools to help people manage their costs in healthcare, more transparency tools. So I think we’ve been in a—we, the whole economy and healthcare particularly—has not really improved productivity. But now I think over the next decade we are likely to make big changes. Again, that requires the up-skilling and re-skilling of our workforce.

Mark Gould:

Yeah, that’s a really interesting point.

David White:

Yeah. It’s so interesting to hear these comments. Of course, all of which resonate as correct insights, but when I think about the comparison between now and the ’90s and I was just coming out of school in the ’90s doing a startup in the non-profit world with youth development. We did have worker productivity gains that our own metrics now show are not matched in the current age. Not yet. The idea that they could be matched using AI carries a lot of the fear factor of well what does that mean to workers and to life as consumers and as citizens. So, the one thing that it takes me back to in the ’90s we were just coming off of the ’80s where there had been, you know, if you think about the Reagan revolution, an untethering from the economy in the ’50s and the ’60s and the ’70s. Reagan comes in, he says, “We’re going to do something different.”
Volcker comes in, he takes some different activity. The ’90s I would characterize as a takeoff period before there was any reckoning as a result of that takeoff period. We didn’t get the reckoning until 2000, 2001 with the dot com bust. The distributional aspects of the ’90s, I recall that all feeling positive, we were moving back into the cities, home ownership for African-Americans and for other groups were elevated, wages were going up, purchasing power was expanding. I remember buying my first Compaq computer and then two or three years later buying a better computer for less. That just seemed like a miracle back back then. It doesn’t seem like a miracle now and we have a much better sense of the cost associated with this new low interest, things getting better every year type economy. We have faced a couple of reckonings. The biggest of course was the 2007, 2008, 2008 crash. I think the productivity gains will make a big difference.

I think it has real implications for policy for the Fed. I remember, you know, Greenspan was a rock star back in the ’90s. He was doing so many great things and we didn’t have any sense of, well is there going to be a price. I just recall, and I didn’t know what I was doing then. I don’t know what I’m doing now, but I didn’t know what I was doing then. But even I remembered people saying he’s a miracle worker and we’ve never seen anything like this before. Where does this lead? I mean that was a big question in the ’90s and now we have a sense of where it can lead if we’re not careful. So, it all feels different and precarious.

Mark Gould:

Well, I’m keeping an eye on the clock. We’re scheduled to 4:15. I want to open it up. We’ve had great questions from the audience today, so I’ll open it up for questions from the audience. I see two over on this side of the room and one over here.

Audience Member:

Hi. So I was just wondering, I’m listening to Rose talk about UPS and their model. I’m just wondering in this and all of these new technologies and automation. So, the first thing of course is self-driving vehicles. I could see where this could just decimate an entire workforce, you know, hundreds of thousands of people. I’m wondering if your perspective, if a company like UPS or one that uses a lot of drivers, even forget the union pressures and the collective bargaining just to displace people would it take them to kind of adopt the Henry Ford model to pay people well so that way they could afford the products so that way they could still use UPS? Or are they going to have that kind of social responsibility, or do you think it’s really going to have to come from the public as almost an uprising to maintain jobs for people to keep a robust economy?

Rosemary Turner:

I’m going to speak to answer that question from the culture of UPS. What I know of UPS, we have always taken care of our people. That’s why I’m happy to say that the UPS driver is the highest driver on the road. Now, does it make sense for efficiencies, and I’ll use the example of Nevada versus California and the trucking benefits that we have versus the two states. In Nevada, I can put three trailers on the road at one time. That is efficient. I have to say that was better than a sale at Macy’s for me. If I could have done it here, I could have been more productive and more efficient. And by the way, based on the contract that we have with the Teamsters for our service providers, if they’re not in that car, they can automatically go back into an inside job. So, I do believe that we will always take care of our employees in that regard.

I would like to speak to automation and even self-driving cars. There will have to be new jobs and new means of training that will require new jobs at UPS, and we can see it already. My automated facilities, while I may have cut staff that actually touched a package, they were all in a back room, which we call the master room on a computer, making sure that those belts were moving and if a package got stuck, they could tell me exactly where it was so that I could go and move it.

So, we may give up a driving job to a much more technical job that will again, we will have to train and retool and make sure that our employees are ready for those positions. But I don’t see it being just an automatic, I don’t need this workforce at all, not at any one period of time. There will be a reduction, obviously.

Mark Gould:

It’s interesting how many times up-skilling or re-skilling has come up in this conversation. It’s something we’re talking about too. I think it’s directly relevant, but let’s go over here. I saw a question over here.

Audience Member:

This woman asked the exact question that I was going to ask about the automation. I was shocked and I raised my hand before and the other lady asked my exact question. But I am so worried about automation. You hear about it in artificial intelligence all the time and what’s ahead because it’s so tremendously disruptive and greatly affects the job force. So I thank you for your comments which are excellent. Thank you.

Mark Gould:

Okay great. Thanks. Okay, over here.

Audience Member:

I had a question about automation and the changes in the labor force. We’re hearing a lot from businesses that we’re going to have to retrain the workforce because changes are coming, self-driving cars, drones, artificial intelligence. Do you feel like you are being asked for feedback from federal, state government about how we can change our education system to speak to the future needs of the business? Is that channel there? And if it’s not, what could the government be doing differently to listen to businesses because obviously you’re thinking forward so maybe policymakers should as well.

Rosemary Turner:

I would not say that I’m hearing that from policy makers. I sit on the board of a university and as board of trustees we are having that conversation and as a private sector corporation, one of my voices at that table is constantly, “Why is it taking you so long to prepare them? We need them now. By the way, I’m having to retrain them after they leave your college.” So, we need to get to much more specificity of what the needs are in corporate America and how we can get college students ready to take on the job. We should be working closer together on that. Ideas have been thrown out that why can’t you graduate in three years and many universities are actually looking at that. Things such as, why can’t I have on the job experience while I’m still in college so that we can begin to make this process a lot faster because we actually need those. You hear Chip speak of pilots.

But there are engineers and I just have to take the second to tell you, you think you just see a service provider on the road and he’s delivering because he’s happy but when he leaves that building there is a dynamic piece of equipment that’s on his car that tells him don’t deliver there, deliver there now because the traffic is less right now. You could be more productive if you go there. Many have heard that we don’t make anything but right hand turns. Those are very specific reasons for efficiency, speed, safety and fuel consumption which leads to profits and the like. So, I’m hearing it more as a voice on a board, not from federal agencies.

Pat Richards:

Right. I would add to that. We’re really fortunate in Utah that there’s a large university system but there’s also a very active community college system. I know some of our colleagues on the Salt Lake branch are working to build more community college capability up in Idaho. These organizations have reached out to the business community and they actually say, “What are your needs and how can we restructure our curriculum?” They’ve dropped courses, they’ve added courses. The other thing I would say about—I’m most familiar with the Salt Lake Community College. They have done such a remarkable job in pulling in first generation students. They probably do the best job in terms of inclusion and equity and understanding what does it take not only to start your community college but to complete it. They have worked with both the state legislature and business to find very creative ways to help people fund their education so that financial barriers to completing community college should not exist in our state because of the way they’ve worked together, kind of a public private partnership.

That does bring one more note. We have to get people trained and we all have to adapt and find new ways of working to meet, again, the needs of the consumer. One of the things that we see in healthcare professionals a lot, they do come out of school often with a high level of student debt. We talked about that at our last meeting. How that can be very crushing, and I know our organization and many others are now thinking about how do we, in terms of benefits, it may not be the salary, but it may be helping people repay student debt. I think that will be another type of investment that we’re making in employees to help them.

Chip Childs:

We do that a ton. We have programs when you go become a pilot, we pay off loans and tuition reimbursement, that type of stuff. But the interesting part about your question is, we talk about the demand from the industry of what we need with this talent. We talk about the educational piece, but the people, you know, the students and the individuals who want this, they’ve never wanted it more. I mean, I’m not trying to bash academia in any way, but the demand for the people on the supply and what they want has never been stronger in the economy that we have today. But the connectivity of that with their ability to help them finance it, and all that type of stuff is probably the largest gap we see in connecting this whole circle of meeting the demand that everybody wants to meet.

Mark Gould:

That’s great. Good question. Thank you. I saw another hand over here.

Audience Member:

I want to try to circle back to where we started today, which was with the Phillips curve. So, the Phillips curve, so I think it was Jason. It wasn’t Doug because Doug doesn’t do slides. Was Jason who showed us the Phillips curve, the original Phillips curve vis-a-vis wage growth. Then the American version vis-a-vis price inflation. You’re the wage setters, and you’re the price setters. So talk to us. I want to hear you talk about two things. What is the impact of a falling unemployment rate on your wage setting and on your price setting? Also, specifically when the Fed lowers interest rates, what do you do differently as a result of lower interest rates?

Rosemary Turner:

So in a fallen-

Mark Gould:

Someone go first.

Rosemary Turner:

Yeah, and I’m going to try to make sure, I brought out a pen to make sure, you specifically said in a fallen unemployment rate what do we do differently?

Audience Member:

With falling unemployment rates, how does that affect wage setting and price setting? When they lower interest rates, what do you do differently?

Rosemary Turner:

Got it. When that does occur, how was that, there is no change in our contracts with our Teamsters. So, employee salaries or wages doesn’t do anything. Now what does happen on the other side of it when interest rates fall, you see inventories increase. So, if inventories are increasing for small business and corporations when I walk in and we’re talking about negotiating your contract, and I’ll just stop here real quick. I know when many corporations advertise that the shipping is free. Come on, the shipping is not free. They baked it in.

So, when I go into negotiate a contract with you and I can see that you are willing to engage in a partnership with me that lasts for two to five years, and based on the segments that you are shipping. Air we love, we make a lot of money in air. Ground, we love it, but we make more in air. Okay. So when you’re saying that you’re going to really push product in that lane, then I can give you a greater discount. That’s for the customer negotiation. When you speak to internally, what do we do as a business? It doesn’t affect our strategic plan at all. We love the tax break that just happened because it did, it helped that quarter investor relations that we just had big time. But if I were to go back to negotiating contracts, our increase in air over the last quarter was up 30%. Yay, it’s a big deal.

Chip Childs:

I mean, I think for us wages are way up. I’m paying less for airplanes that I buy. Fuel is pretty reasonable, standard, not going up like everything else. In the airline industry today, if you inflation adjust it, it’s probably as cheap to fly today as it’s been, but yet the industry is healthy due to some consolidations and some of the things that have happened. So, to me this is kind of the mystery of the different economy. Because you look at the data that we’ve looked at today and you see what’s different here and there has to be an element of efficiency, productivity, and evolution all happening together that makes all of this better.

I mean, I can’t figure out why I’m, I mean I know why I’m paying less for an airplane today than I did a while ago. Mostly because they’ve been making them for a little while and their investor dynamics are a little bit different and the cash flow is good, and more than anything of that nature there’s a lot of this going on, but we don’t worry about it. I’m glad that we can take better care of our people and make a product that’s probably better than it’s ever been, safer than it’s ever been. And somehow all that works out and it’s probably has something to do with productivity, strategy and an efficiency. But this economy feels like it’s chess, not checkers like it used to be. I think that’s kind of the evolution that we have to kind of look at a little bit, but it’s good. I think from our perspective it’s good.

Mark Gould:

Anybody else?

Rosemary Turner:

Skip?

Mark Gould:

Skip?

Skip:

First of all, I want to offer my services, Chip. I’ve been working for many years to build hours. I’m there-

Chip Childs:

I’ve tried to hire you like three times and you keep saying no.

Skip:

I like your idea of agility. I assume you can wave some of the age requirements.

Chip Childs:

Must be that safety check or something.

Rosemary Turner:

He’s a pilot.

Skip:

You know, we’ve talked about a lot of things, but one thing I I’m not sure we’ve talked too much about it. I’m just curious, any particular thoughts relates to sort of the world economy, trade policy, tariffs, Brexit, how that’s affecting the economy and when we look at opportunities and challenges, any particular thoughts?

Chip Childs:

I think UPS needs to address that.

Rosemary Turner:

What can I say? I’m going to start with some statistics. 96% of all emerging markets are happening outside of the US. That should answer the question in a nutshell. We need trade and we have seen extreme growth when trade policies and agreements are happening. We want it and I’ll also speak to the most recent investor relations. We are keeping a close eye on what is going on in the federal government and what is the administration going to do because we are anxious. We have continued to invest in infrastructure in other countries and I’ll just take this moment. It was just recently in the news that FedEx has not. Yes, FedEx has had to delay the implementation of TNT. I’m happy to say that we backed out of that deal and you can see that it’s not happening the way it should’ve happened. Brexit, all kinds of things are impacting that. And so yes, there’s grave concern around it, but we have seen again in the most recent investor relations, we saw a growth in international because of our infrastructure and our commitment to continued growth and emerging markets. We are not just looking at the usuals to continue to find growth. We are investing and going to emerging markets to start them up just like Gateway started up some 30, 40 years even though they’re not here anymore. That’s where we are focusing while we wait.

David White:

It’s worth noting that in entertainment as an example, the growth for that industry like many industries is international. It’s a mature consumer base. Many, if not all of us here have cable or a Netflix subscription or some other subscription. So, they got to go elsewhere. This is all pretty scary stuff for the industry to the degree that it would affect their consumer base. I think it’s not doing that now, but for working Americans generally, so putting on my labor hat. Instability is just so not helpful. It’s already a precarious working life that so many people face. If the markets are going to dry up, whether you’re talking about farm or what have you, because markets like China are now being cutoff, there’s more costs associated with things going over the border and from Mexico, et cetera. All of that really does have an impact and it raises the fear factor that a lot of people face on a daily basis.

Mark Gould:

Well, we’re at time. So, I just want to say thank you to each of you for being on the panel, and also thank you for your service on our Board of Directors. Please give these folks a round of applause.