00:00We know ADP is a payrolls company.
00:02That's kind of like what everyone knows it as, automatic data processing.
00:05But you do also manage workplace benefits like retirement accounts and health insurance.
00:09Is that right?
00:10We do.
00:10We do.
00:11We offer a lot of solutions for small businesses who are looking to offset health care costs.
00:16You know, and that is where we are right now.
00:19These health care is climbing, and whether you shift it to the worker or you, you know,
00:24assume it as the small business, they still have to be dealt with.
00:27And a lot of people work just for benefits.
00:29It's not just about the paycheck.
00:31And so we do offer a variety of solutions for small businesses for just that reason.
00:37Yeah, a lot of people go work at Trader Joe's because they can get health insurance.
00:40When employers tell employees, go figure out your own health insurance because costs are
00:44rising too much for us, is that just exposing individual households to inflation in a more
00:48direct way?
00:49I think so.
00:50I think so.
00:51I mean, there is something about combined care and having a managed service.
00:57And I think there are solutions.
00:59ADP has a variety of them, but there are others in the marketplace that, you know, serve as
01:04an alternative.
01:05But no one is really escaping the elephant in the market, which is health care costs
01:11are climbing.
01:12And a lot of these drugs, whether it's GLP-1s and obesity or if it's even cancer treatments
01:19that are really revolutionary, they all come with a price tag.
01:24Pharmaceuticals have a seven to eight year span in which they can recoup costs.
01:28And that is what employers and employees are facing.
01:31To take advantage of these next level care, you really have to pay up.
01:35And that's what's really challenging in this moment.
01:38Also challenging is the overall affordability picture.
01:42Consumers say that they're feeling lousy.
01:44We know that they're seeking value.
01:45Walmart, McDonald's have certainly benefited from that.
01:48But there is new data showing a rise in fast food restaurant bankruptcies, including some
01:52Popeye and Subway franchisees.
01:55How do you read into this kind of development?
01:58You know, first of all, the restaurant industry is a hard industry.
02:02And not every restaurant, even a franchise, is a successful franchise.
02:07But when I talk to restaurant owners, it seems to be that fast, casual segment that's doing
02:12better, but one of the things that surprised me when I talked to these real restaurant conglomerates
02:20at the fast food level is that they're really concerned about affordable housing.
02:24Now, you think about where these restaurants are located.
02:27Location drives the consumer, you know, consumer demand.
02:31If they're not well located, they're not going to get the traffic.
02:34If you're not seeing the Popeyes on the way home, you may not think Popeyes on a Saturday evening.
02:39But so they need workers to live where their customer base is.
02:43And if there is a disconnect because it's too pricey in San Francisco or Los Angeles or New York City,
02:49it's going to be hard to get the workers inside that door.
02:51I think that's a really important point because franchisees say that they're seeing elevated costs
02:55for rent, for wages, for food as well.
02:58The question I have for you is that owning and operating these businesses has been one of the
03:02tried and true ways for Americans to build wealth, isn't it?
03:06I mean, when people say they're business owners, small business owners, a lot of them own franchises.
03:10You know, historically, there's only been two real ways to create wealth in the United States.
03:16And incidentally, it's the reason why millions and millions and millions of people come to the United States.
03:22The first is through entrepreneurship.
03:24The second is through housing.
03:26Most of us choose the housing option that for savings.
03:30And that used to be the old school way of building wealth.
03:33Well, now look at new business formations.
03:35They have not receded.
03:37They have stepped up since the pandemic.
03:39They keep growing.
03:40AI has enabled a lot of small businesses.
03:43I think the silver economy and the aging workforce and now tanking that talent and opening a business is part
03:49of it.
03:50And so, yes, having that small business is a way of wealth creation.
03:54And we're seeing it becoming more popular, maybe tapping into some of that home equity for boomers who have it.
04:00Absolutely.
04:01For those who do get a paycheck and have to get a W-2, inflation is proving to be pretty
04:05sticky.
04:05And a lot of people get wage increases, jump condition wage increases by changing jobs.
04:11Does changing jobs still produce a pay bump?
04:14What are you guys seeing in ADP on that?
04:16Yes, it does still produce a pay bump.
04:19But the premium for that pay bump has narrowed significantly.
04:23How much?
04:24We're looking at about 2% between switching and just changing for the average worker.
04:29Now, it matters a lot what kind of industry you're in.
04:32If you're a construction worker, expect almost 14% increase from your old job to your new job.
04:38Really?
04:38If you're in retail or leisure and hospitality, the restaurant business that we were just talking about, you'll actually see
04:44negative earnings for the typical worker, negative growth from switching jobs.
04:49Because that is an industry that rewards loyalty and service over fast switching.
04:54So it really depends where you are.
04:57Older workers don't switch jobs as much.
04:58And this is really an important issue.
05:01Because if you look at the cumulative inflation that we've seen over the last five years, my colleagues at ADP
05:07Research and University of Chicago just put out a paper on this last week.
05:1147% of Americans, according to our research, saw real wage declines over the last four years because of inflation.
05:20So this is why consumer sentiment is dismal.
05:24People's salaries are just not.
05:26So you may have gotten that raise, that 3% raise that most companies give, but it's not enough to
05:31compete with 7% inflation, even as inflation was lowered through those subsequent years.
05:38Those are people who work at companies and are on the payroll.
05:40What about independent contractors?
05:43What can you tell us about the wage trends for these folks?
05:46Is that captured in the same way?
05:47You know, yeah.
05:49Well, at ADP, we see everybody.
05:51And we also see single-person proprietorships.
05:54And so what's happening with the contractor, what the vendor said, is that they're building in their contracts.
06:00So unlike workers, they can say, hey, please put in a 3%, 6%.
06:04I actually have seen a 7% in the heart of our inflation peak where contractors were asking for multi
06:13-year increases based on inflation.
06:16So contractors, the savvy ones, have been able to index their wages to inflation in a way that no worker
06:23would be able to do in a regular contract.
06:25Okay.
06:26So employees should be taking their cues from these contractors and these construction workers who seem to see outsized wage
06:32gains.
06:32We have to go back to our previous conversation.
06:34Those jobs come without health benefits, by and large.
06:38Before we wrap up our conversation, Neela, we always ask our guests here on Bloomberg Money how you approach managing
06:44your personal finance.
06:45Are you kind of a set-it-and-forget-it investor?
06:47Or are you making adjustments on a regular basis, a quarterly basis or annual basis?
06:52How do you think about it?
06:54I do both.
06:55I'm a big believer in dollar cost averaging.
06:58And this is where the housing moment is important.
07:01The importance of housing was not just the house and the appreciation.
07:05It was the fixed savings, the discipline of putting the same amount of money into equity eventually every single month.
07:13Well, even if you don't have a house, you can have that same discipline in the market.
07:17And that's called dollar cost averaging, where you're putting in a fixed amount of money into the market,
07:24whether it's an ETF or some other broad-based equity and bond portfolio, every single month.
07:30And I'm going to speak an old book.
07:33It's not timing the market.
07:34It's time in the market.
07:35So if you can do that at a younger age, you can build wealth over time.
07:38But you know what?
07:39I'm all about selective bets.
07:41And we've seen some startups that are really appetizing in terms of an investor portfolio,
07:47especially if you're young enough to see it pay off.
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