Trickle-downers always argue that raising the minimum wage inevitably kills jobs. But the empirical evidence from Seattle, Los Angeles, and elsewhere prove otherwise. Experts, including Mayor Garcetti of LA, discuss how our economic understanding has changed, and why changing the public perception around the minimum wage has been so difficult.
Eric Garcetti: Mayor of Los Angeles since 2013. Former member of the LA City Council, serving as council president from 2006 to 2012.
Alan Krueger: Bendheim Professor of Economics and Public Affairs at Princeton. Former Chairman of President Obama’s Council of Economic Advisers and a member of the Cabinet from 2011 to 2013. Co-author of ‘Myth of Measurement: The New Economics of the Minimum Wage’ and ‘Inequality in America: What Role for Human Capital Policies?’.
Richard Kirsch: Director of Our Story at the Hub for American Narratives. Led development of Progressive Economic Narrative Project and has done extensive training with organizational leaders and elected officials on delivering powerful narratives.
Further reading: Raising the Minimum Wage Is Good for Everyone
Seattle’s $15 Minimum Wage Experiment Is a Success
Nick Hanauer: If you can get people to believe the claim that raising wages always kills jobs.
Speaker 2: Tax is too high, wages too high, we’re not gonna be able to compete against the world.
Nick Hanauer: Then you have explained the economy to them in a way that makes them fear raising wages.
Speaker 3: If you raise the minimum wage, you’re gonna make people more expensive than a machine. And that means all this automation that’s replacing jobs and people right now is only [00:00:30] gonna be accelerated.
Speaker 4: They’re some people who I think who just have difficulty not fitting the world into a particular structure.
Speaker 2: But we cannot do this, if we are going to compete with the rest of the world. We just can’t do it.
Speaker 5: So do not raise the minimum wage?
Speaker 2: I would not raise the minimum.
Stephanie Ervin: From the offices of Civic Ventures in Downtown Seattle, this is Pitchfork Economics with Nick Hanauer. [00:01:00] Where we explore everything you wished you learned in Econ 101.
Nick Hanauer: I’m Nick Hanauer, founder of Civic Ventures.
Stephanie Ervin: I’m Stephanie Ervin I run a lot of our advocacy and campaign work here at Civic Ventures.
In our last episode, we’ve been focusing on the three legs of the trickle down stool and today we’re gonna cover [00:01:30] that last leg. This one we’re experts in so get ready to answer the question, do higher wages kill jobs?
Nick Hanauer: Yeah, thanks Stephanie. And for sure because wages are where the money is, this is the most pernicious claim of trickle down economics. If you can get people to believe the claim that raising wages always kills jobs, then you have explained the economy to them in a way that makes them [00:02:00] fear raising wages and be sympathetic to the idea that we shouldn’t raise the minimum wage, that we shouldn’t help workers that to do so would harm the very people its intended to help and this is the biggest lie in trickle down economics. There’s no empirical evidence for this, but it is really really easy to understand why economic elites, why the chamber of commerce, why big business people are so hard core about making this claim relentlessly. ‘Cause if they can get you [00:02:30] to believe it, then you can be sure that their profits are gonna be high and your wages are gonna be low.
Stephanie Ervin: Right. So this is one of the first fights I remember our shopping involved in. In the summer of 2013-
Nick Hanauer: Yeah.
Stephanie Ervin: I started hanging around the Civic Ventures orbit. The fight in Seatac was just getting underway so can you take us back to that time and how you got involved?
Nick Hanauer: Yeah, so we had for a long time been thinking hard about the issue of inequality and political economy and, in my own work on sort of reimagining the [00:03:00] dynamics of market economies and how they’re really best understood as ecosystems, not this sort of mechanical zero sum game, when one thing goes up and another thing comes down and so it was really clear that the question of the minimum wage wasn’t does raising it kill jobs, but rather what’s the optimal level for the minimum wage to generate growth for everyone and then we started nosing around for a good number and what we realized was that if the minimum wage had tracked [00:03:30] inflation since the ’60s it would have been about $11 an hour.
If it had tracked productivity gains, it would be about $21 an hour and if it attract the wages of the top 1% of earners, it would be about $28 an hour. And so we knew that a number like 15 was not as unreasonable as it then sounded, that in fact, if you took us back to the economy of the ’60s we were effectively paying $15 or $20 an hour, relative [00:04:00] to the economy back then. And so we started talking about 15 and modeling it in mid 2012. Fast food workers went on strike shortly thereafter in some places for 15 and our dear friends at SEIU, David Rolf and Sterling Herders, cooked up this idea of running a $15 minimum wage campaign in the tiny town of Seatac, where the airport is.
Stephanie Ervin: Right. So Sterling actually talked [00:04:30] about how airport workers at-
Speaker 8: Seatac Airport had been fighting for the better part of a decade to increase their wages. I think it’s important to remember that all of those jobs at Seatac Airport, lots of them, used to be good jobs. In many cases, good union jobs. And starting in the year 2000 and through the middle part of that decade, in particular Alaska Airlines contracted a lot [00:05:00] of those jobs and folks who had been making, what was a decent living wage were suddenly laid off and offered the opportunity to come back at their jobs making often times very close to minimum wage.
So workers at the airport and around the airport had been trying to organize to make improvements for years and they’ve been fighting to improve their wages and they’ve been fighting to form a union. And they finally said, enough is enough. And they decided [00:05:30] to take their fight to the people of Seatac. To the voters in Seatac until it then decide whether or not workers at Seatac Airport and around Seatac Airport deserve to make a living wage.
Nick Hanauer: And so off we went and of course, as you may remember we took a lot of hits. People gave us a lot of shit about that.
Speaker 3: So I see it as a job killer for the young and the immigrants in the country that are coming in and [00:06:00] may not speak English perfectly. Gonna wanna get the best, most efficient employee that you can for that kind of money. That’s middle wage, not the beginning wage.
Nick Hanauer: [crosstalk 00:06:12] thought we had lost our minds politically that it was futile and stupid and hopeless that you could ever get something like that done, but they also thought, including many many of our friends on the left, even economist friends on the left, that by so doing we would destroy Seattle’s economy, [00:06:30] we would crush jobs. That Seattle would slide into the Pacific Ocean and we’d all, you know, die because such a thing would kill so many jobs. And, of course, nothing remotely like that happened, in fact, the more we raised low wage workers’ wages, the better the economy got, in fact, the data from last week suggests said the fastest year over year increase in employment in the entire country was in our area, plus 3.6%. Clearly, [00:07:00] if raising wages killed jobs, we would not be in that position.
Stephanie Ervin: Right.
So in this episode, we’ll talk to economists who have studies these real world examples. Politicians who’ve had to live with the consequences of passing minimum wage battles in their cities and get their take on whether the sky fell afterwards.
Nick Hanauer: Should be fun. Should be fun.
Stephanie Ervin: So our next guest is actually Mayor Garcetti of Los Angeles, and you know, we recorded this interview with Mayor Garcetti before he formalized his decision about not running for President, but we included the whole convo [00:07:30] here because we hope it will help guide the thinking of many of our friends who are jumping into that race. And we fully expect to see more from him in national politics in the years to come.
Nick Hanauer: Mayor Garcetti, I am joined by my colleague, Stephanie Ervin.
Stephanie Ervin: [crosstalk 00:07:49]
Nick Hanauer: We do this thing called Pitchfork Economics and-
Mayor Garcetti: Yeah I’m excited.
Nick Hanauer: We’re super excited to talk to you.
Mayor Garcetti: I’m in my overalls right now with a pitchfork [crosstalk 00:08:00] [00:08:00] and [inaudible 00:08:03]
Nick Hanauer: Anyway, perhaps the best exemplar of a fight over political economy and a fight over the meaning of the economy and the fight over where prosperity comes from has resolved around the issue of the minimum wage. You were one of the early courageous actors on that issue [00:08:30] and did a $15 minimum wage in Los Angeles shortly after we did it and the prediction was that the city would slide into the Pacific Ocean and cats and dogs would live together and the whole thing would come tumbling down. Update us on what’s happened.
Mayor Garcetti: Well cats and dogs are living together. So that part was true, but we did not slip into the ocean. And, in fact, we, you know, by the time we get to 15 it’ll be about, I think, a $3. [00:09:00] 4 million dollar raise every single hour of work in this city for more than 500,000 families.
Nick Hanauer: Wow.
Mayor Garcetti: The majority, I think it’s 550,000 [inaudible 00:09:13] will see these continually just go up. It’s $13.25 today, it’ll be $15 in two years and what that allows us to do is to see that money get recycled. Our unemployment, I think, went down by 14% the first year the wages went up. [00:09:30] So everything that was predicted and, it’s not to say there isn’t some dislocation, some difficulties in other industries, but the net gain has been overwhelming and we’re seeing huge new startups for businesses. Small businesses on our main streets. And we think more money being spent by everyday people because if you’re living that close to the line and you get a raise it’s not going, unfortunately, into the bank, but fortunately it’s being spent on the local economy, which has a great multiplier effect.
So [00:10:00] we’ve seen, you know, the city’s labor force participation rate increase to 66.9 and that was after the minimum wage increase came. So more workers are working. Unemployment is down. We’re seeing wages go up, obviously, from this ’cause the pressure’s not just on the minimum wage, but people above the minimum wage has seen a little bit of a raise too. So we found it be very successful and, you know, contrary to what people say you’re allowed to do, we also reduced our city’s business tax at the same time.
Nick Hanauer: Oh great.
Mayor Garcetti: You know, there’s something [00:10:30] that actually helps the businesses when employees are making more and we, I know you’re not allowed to do both of those, if you’re a democrat or republican, but as a Mayor I said, well both seem to be widely popular, both seem to be needed, and we raised our minimum wages. We lowered our city’s business tax.
Nick Hanauer: Yeah. That’s great. So the Mayor of Washington, D.C. and the city council overturned and initiative that had won [00:11:00] easily, to raise the minimum wage in that city. To be clear, the Mayor and city council were democrats. What is that about? How can it be, at this point in the evolution of the politics of our country, that democrats in a major city like that would be against this common sense idea? Where do you think that comes from? If you had to guess.
Mayor Garcetti: [00:11:30] Well, you know, and I’m a fan of Mayor Bowser. She’s been a great and progressive Mayor, you know, on so many fronts and so I don’t know all the details of the D.C. one. I think part of it had to do with whether or not tips are counted as wages. And, you know, this is a tough one because we talked to a lot of restaurant owners who say hey, I wanna give the back of the house folks a raise and I’d easily like to pay them $15 bucks an hour for washing the dishes, but my bartender or my waiter easily makes, you know, already $30 bucks an hour with tips, or something like that.
[00:12:00] But if you talk to, and it’s usually more women than men, folks who are waiters and waitstaff, not just at the, you know, fanciest places, but those at the diner where there’s not always people. You know those tips are critically important to get to that minimum wage. So I think if they, it sounded like some of the nightlife people in D.C. convinced them, or restaurant owners that, you know, they should repeal that that you can’t count tips as other wages because they now want to have something standardized. And it really speaks to the fact that it’s so chaotic in [00:12:30] this country right now. There’s so many different laws, we don’t have a national leadership model on this.
Nick Hanauer: Right.
Mayor Garcetti: We haven’t raised national minimum wage. And, you know, people are really insecure because they don’t know where their benefits are gonna come from. What they need to pay for. They require the discretion of the customer, rather than just the value of their work to be able to take home what they need to feed their families and have something for healthcare and even retirement. So, you know, I don’t quite understand it. That’s not something I would’ve done myself, but I [00:13:00] think you can find these cases, which people come from specific industries and say, hey this is hitting us a little too hard and people are taking action.
Nick Hanauer: Yeah.
Mayor Garcetti: But it really speaks to just a lack of national leadership on this.
Nick Hanauer: Yeah, I think that’s true.
Stephanie Ervin: So Mayor, I have one more question on the minimum wage I was looking back at how you ran the campaign down there for the $15 wage in L.A. and I’m looking at a poster that say, we’re raising the wage in L.A. to care for our families and our economy. And it strikes me that, in many of the early minimum wage fights we were [00:13:30] talking about fairness and doing just a little bit incremental change for the most vulnerable and you, instead, were talking about caring for our families and our economy. Can you speak to how you landed on that messaging?
Mayor Garcetti: I think people forget that that’s where we kind of live our lives with the families when they passed our transportation measure, we needed two-thirds vote in California to raise the tax and we were always at about 63, 64% and after two weeks of spending $5 million dollars on ads that talked about jobs [00:14:00] and showed trains moving and streets being paved, we’ve gone down to 61% until, the guy who makes my commercials said let’s just get in the car and drive, no script. You drive and I’ll ask you questions. And I think we won my 71% ’cause I had a line in there like, here we are stuck in rush hour traffic. Only problem is it’s Saturday afternoon. And I think we need to humanize these things like you’re just a driver in a car and everybody can relate to that. Or your family [00:14:30] trying to earn a decent wage to put food on the table and not decide between food and rent. And when you look at the larger need, which is hey, we’re all part of an economy you need messaging that includes everybody. That brings that, you know, wealthy businessperson in and we had folks like Eli Broad, who’s founder of two Fortune 500 companies, embrace a need, even say we should accelerate it and go higher and do it faster. Alongside the people you would expect, from organized labor or from, you know, the religious community.
And I [00:15:00] think so often we wanna just convince people do this because it’s right and that doesn’t mean, you know, that you’re wrong. These are righteous causes that are moral… right thing to do. But you have to convince people what’s practical. ‘Cause there’s a lot of things that people claim ar the morally correct thing, but I think more people across the spectrum will join me if you just say, hey this works. When people have more money in their pocket it’s gonna be good for you as a business owner ’cause they’re gonna come and spend money.
Nick Hanauer: The practical benefits [00:15:30] of a moral consideration.
Mayor Garcetti: Absolutely.
Nick Hanauer: Yeah.
Mayor Garcetti: There you go, I love that. [inaudible 00:15:35] that’s my slogan right there. My new bumper sticker.
Nick Hanauer: Let’s zoom out a little bit and talk about as Mayor of second biggest city in the country.
Mayor Garcetti: Yes.
Nick Hanauer: How do you think about economic policy from the point of view of a democrat with large? Let’s say you were in charge of the country? Let’s say you were President of the country, [00:16:00] what would you do? How would you think about it?
Mayor Garcetti: Well I think I would think about it two different ways. One is kind of the philosophical approach and one is the policy approach. Philosophically I think we’re a country that as always embraced and fought for the underdog. And somehow that brand got taken from us. Donald Trump convinced everybody that he was fighting for the underdog. That democrats were the party of kind of elites [00:16:30] and special interests. We kind of boxed ourselves into a corner of being the smarty pants party and with a good micro answer to every, you know, three levels down policy question about, you know, the second year of community college for part time folks and this program we have, without ever saying kind of our national vision of who we are, our values. And I think if I bullet down to simplest terms, we should have economic policy that helps the underdog.
The underdog has to work hard, [00:17:00] has to put in her time, you know America’s always been about incredibly hard workers, but a system shouldn’t punish the underdog and shouldn’t give preference to those who already have over those that don’t policy wise. I’ll share with you my economic philosophy as a Mayor has been. It’s been three fold. Kind of the future and key industries where work and industries are going to grow. Two, investing in infrastructure. Looking at the government as a co-investor that builds infrastructure that helps the economy prosper [00:17:30] and three, making sure nobody’s left behind. That is an economy where everybody belongs.
I like that word belonging. And it applies to all sorts of things, not just economic policy, but I think there’s kind of tribal debate of who’s tribe you in or are we part of a big tribe or a micro tribe? Lots of times people on the democratic side speak about diversity and tolerance and inclusion. I don’t like those words as much because they imply somebody can tolerate somebody else or include you or you’re adding [00:18:00] diversity. Belonging fits everybody. Because you belong here whether you’re, you know, that mythical former co-worker in Appalachia. Whether you’re a young woman in high school in South Los Angeles. Whether you’re living on the border in the Valley in Texas. You all belong and I think economic policy has to make sure that nobody’s left behind that we all do belong. And then, you know, then you can get into that, I think the specifics of what those economic policies [00:18:30] look like. You know a real pathway to good education and work and training and skills in high school and sharing that between public and private sector together like we see other countries do very well.
Free community college like we’ve done here in Los Angeles. A good, basic minimum wage. You know a benefit system that allows you to think about your retirement and in a good way and healthcare. Those four pillars for me of kind of economic prosperity are education, good job, decent healthcare, and a decent [00:19:00] place to live. And that last one’s tricky cause housing markets are very different from place to place.
Nick Hanauer: Yes.
Mayor Garcetti: But the first three are universal and really can be nationally driven. And I think if we get back to that sense of we’re fighting for the underdog, people will respond to that because just like the middle class everybody thinks they’re the underdog in America.
Nick Hanauer: They’re rumors around that you may have national aspirations, do you want to speak to that.
Mayor Garcetti: Sure. I have huge national aspirations for a country that has ideas that come from our local [00:19:30] communities and kind of take Washington back. My role in that is still yet to be determined and something chewing on every single day. But I’ve been doing that long before my name landed on any list of potential 2020 candidates. I’ve been very straightforward. I’m thinking about whether or not to run in 2020, but you know, I’m of two minds. I love my job as a Mayor and I think it’s such a great post to be able to, with other Mayors around the country, remind America that power exists where we live and that it doesn’t come from Washington to us, [00:20:00] but vice versa. On the other hand, I also fantasize about whether it’d be me or another Mayor. And I’ve encouraged others to think about it too. Actually going to D.C. where much less partisan we work inherently with, you know, folks across the aisle were kind of non-partisan, but progressive and focused on results. We don’t invent problems and not solve them like we see coming out of D.C. I think we have to be kind and generous and bring people together, instead of cruel and corrupt like we see out of D.C.
So you know, there’s a lot of things I think as long [00:20:30] as I can bring something to the conversation I’ll stay at the table. Whether that results in me, you know, spending the night is a big decision for me to make with my family and me, but [crosstalk 00:20:40] exciting time to be a Mayor.
Nick Hanauer: Yeah so I guess I hadn’t quite thought of it in precisely this way, but maybe America needs a Mayor and not a President.
Mayor Garcetti: You know it would be amazing and let’s say tomorrow I decide not to run, I would love to have a Mayor running this country. You know I even think about what it would be like to have a cabinet and you could have you know, your Mayor up in Seattle [00:21:00] be a great Attorney General and Mike Blumberg be a great, you know, Secretary of Treasury. Usually Mayors are put into cabinets, but as transportation or HUD. If we actually had a cabinet full of Mayors from both sides of the aisle who-
Nick Hanauer: Right.
Mayor Garcetti: Have shared values on immigration. Shared values on combating climate change. Shared values on how you get an economy going and tactical experience. I mean, when I talk about international trade as a Mayor I think I know as much, if not more than most senators do because [00:21:30] I run the largest port in America in the North America and South America actually in the port of L.A. and Long Beach where 40% of the goods come through. So I know those labor issues, I understand the nuances of that. It’s a great place to learn and states used to be the laboratories of democracy. I really think it’s now become cities. And there’s a lot that Washington could learn.
Nick Hanauer: Yeah it’s an intriguing metaphor. Thank you so much for spending this time with us. You know, we’re really lucky to get to talk to you. And [00:22:00] the country is lucky to have you soldiering away on trying to make it a better place.
Mayor Garcetti: Thank you so much to both you and thanks Nick for being such a clearing voice to whatever responsibilities are to each other and I think if Americans come back to recognizing that politics of multiplication is more powerful than division, we’re gonna be okay.
Nick Hanauer: Yep, I agree.
So I often forget Steph, that many of our listeners actually [00:22:30] don’t follow this stuff as closely as we do.
Stephanie Ervin: Right.
Nick Hanauer: So it’s worth reminding them what the story is and if you didn’t know, the federal minimum wage is $7.25 an hour, but the federal minimum for tipped workers is $2.13 per hour. Which is quite an astonishing number.
Stephanie Ervin: Totally crazy.
Nick Hanauer: That is converging on slavery.
Stephanie Ervin: Yep.
Nick Hanauer: Isn’t it? [crosstalk 00:22:58] It’s almost zero [00:23:00] plus tips.
So in Seattle the idea of raising the minimum wage for all workers to $15 seemed like an absolutely insane step and it’s worth noting that in Seattle Washington today if you work at a restaurant in our city, you earn $15 an hour plus tips. So, as opposed to a worker in [00:23:30] Alabama working at the same Denny’s.
Stephanie Ervin: Right.
Nick Hanauer: Who would earn $2.13 plus tips and here’s the really interesting thing about that gap is it’s not a 7% difference, it’s not a 70% difference, it’s a 700% difference in wages. And so-
Stephanie Ervin: For the same work.
Nick Hanauer: For exactly the same job. So what’s interesting about that is it we continue to have Denny’s in Seattle and in Alabama. All the Denny’s have not closed. In fact, the [00:24:00] density of restaurants in Seattle, Washington is among the highest in the nation. And what’s really interesting that sort of zoom in on is there’s not a starker natural experiment that you can run. I mean the difference between two and 15 is large.
Stephanie Ervin: Yeah.
Nick Hanauer: If Alabama was at 14 and we were at 15, the effects might be lost in the noise, but the difference between two and 15 is so vast it is really marvelous test of this proposition that, you know, [00:24:30] if you pay workers more, will it crush jobs and will it put all the businesses out of business and so on and so forth? And, of course, nothing like that happened. In fact, as you know, the restaurant business in Seattle is insane.
Stephanie Ervin: Booming.
Nick Hanauer: It is booming. It is booming. Four restaurants are opening for every one closure right now in our city and this is for an incredibly simple reason. It should be obvious, but it’s not to many people which is that when, even restaurants pay restaurant workers enough [00:25:00] so that they can eat in restaurants it turns out to be pretty good for the restaurant business.
Stephanie Ervin: Right, go figure.
Nick Hanauer: Yeah, who would’ve thunk it? And so, you know, it’s very exciting he running this natural experiment with these vast differences so that you can begin to slowly put to bed this idea that raising wages kills jobs, which really is best understood as an intimidation tactic, masquerading as economic theory. It’s just a way for rich people to bully poor people into accepting low wages.
Stephanie Ervin: Right. When I meet people [00:25:30] who have visited Seattle in the last, you know, five years they always talk about our food scene. And they should know that when they are celebrating our, you know, world class food scene here in Seattle, they’re also celebrating the $15 minimum wage fights that came right at the same time as that boom.
Nick Hanauer: Yeah exactly. Exactly. It’s been good for everybody.
To be fair, some of my friends who run restaurants continue to whine about the fact that they have to pay their workers more, but you know, none of them offered to sell me their businesses for $1 because we had wiped them out.
Stephanie Ervin: Right. [00:26:00] Right.
Nick Hanauer: Just sad. Thought might be able to buy them all.
Stephanie Ervin: So while it’s interesting to hear what politicians think about wages, we wanted to really understand public opinion and for that we called our friend Richard Kirsch. Richard is the Director of Our Story: The Hub Of American Narratives, and he has a better grasp than anyone on American beliefs. Here’s his report on recent public opinion polling on raising the minimum wage.
Richard Kirsch: One of the most remarkable things about the fight for 15 or the campaign to raise the minimum wage to $15 is, [00:26:30] at first it did not poll that well. It seemed like a bold idea and people who had never heard of that and the people have heard the back of their minds that oh minimum wages are gonna kill jobs and seemed like too much of a reach they, you know, $10 is okay, $15 so it didn’t poll that well. But, as the campaign went forward, that really changed.
And two things changed it, one is actually seeing workers were getting paid low wages and couldn’t support their families out there fighting, but also another story that [00:27:00] was told, a story that really is what’s going on with a minimum wage. And so that story is that not that minimum wage has killed jobs, but then when people get paid more, they then turn around and spend that money at their local businesses. They spend that money in their communities and that actually boost the economy and creates jobs.
Now if you look at the data on this, and this is real minimum wage hikes that have gone on for decades now and you can see well when the government [00:27:30] raised the minimum wage nationally or when states raised the minimum wage, did it lead to job loss? And the answer is no. In fact, when minimum wage has been raised there’s been no job loss. Or if you pick one state, say Washington raises the minimum wage and Idaho doesn’t, to see in adjoining counties, is there more job loss in Washington? No, it’s not like employers are saying we’re gonna, you know, hire people at lower wages in Idaho and not in Pullman it doesn’t happen so, it’s just not right. [00:28:00] It’s just not true. The economics don’t work, the facts don’t work and people have gotten it.
And by telling this story over and over again, that when you raise the minimum wage, so that families can care for and support themselves, they’re spending in their local communities will create jobs on main street, will boost local communities we’re now at a point where polling across the country and including in battleground states are showing between 55 and 60% of the public supports raising the minimum wage to $15. And that includes most of the major [00:28:30] demographic groups. There’s a partisan split, of course, but even 57% of republican women say they support raising the minimum wage to $15. So this is become a trans partisan issue where almost every demographic group supports it and it’s gone from oh that’s bold and crazy to this makes perfect sense. And it makes perfect sense ’cause it’s right and also makes perfect sense ’cause it boosts the economy and it creates the kind of middle class working family driven economy. That’s the real economy.
Nick Hanauer: [00:29:00] So I’m incredibly excited to talk to our next guest. The economist, Alan Krueger, who’s the Bendheim Professor of Economics and Public Affairs at Princeton. He’s a Research Associate at the National Bureau of Economic Research, but Alan is one of the most respected and experienced economists in the country. He served as Assistant Secretary of the Treasury for President Obama and was also the Chair of the White House Counsel of Economic Advisors. [00:29:30] But, you know, the best and my most favorite thing about Alan is that he and a colleague were really the first ones to do an empirical analysis of what happens when you raise the minimum wage. Up to that point, basically, people had predicted what would happen if you raise the minimum wage based on neoclassical economic models in spreadsheets. What Alan did [00:30:00] was actually look at the data, actually went out into the world and examined what happened to people and jobs when you raise the wage. And he concluded that nothing happened and that started a whole new line of empirical economic research to try to answer this incredibly important question.
[00:30:30] Hey Alan, Nick.
Alan Krueger: Hey Nick how are you?
Nick Hanauer: I’m good. How are you?
Alan Krueger: I’m doing, you know actually preferably I’m doing fine [inaudible 00:30:38] country.
Nick Hanauer: Yeah, other than that, it’s all good.
You’ve been at Princeton 31 years?
Alan Krueger: 31 years since [crosstalk 00:30:48]
Nick Hanauer: Well listen, I want to start off this conversation with a quote from an economist. I want you to name the economist. [00:31:00] And that quote, the inverse relationship between quantity demanded and price, is the core proposition in economic science, which embodies the presumption that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that water runs uphill, no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, [00:31:30] becomes equivalent to a denial that there is even a minimal scientific content in economics. Who was that economist?
Alan Krueger: I believe that was James Buchanan.
Nick Hanauer: You are correct sir.
Stephanie Ervin: Ding ding ding.
Nick Hanauer: Yeah and where did that quote appear? Do you remember?
Alan Krueger: My guess is on the editorial pages of the Wall Street Journal.
Nick Hanauer: Yes. And why did he write it?
Alan Krueger: You know, it’s a funny story. The Wall [00:32:00] Street Journal ran a series of criticisms of my work with David Card in the mid ’90s. Like a whole page full. And that one came in late. That one was printed separate from the rest so it was, you know I guess, felt by the Wall Street Journal editorial board so important to just pile on. To come up with yet another criticism of us. And that one was so far over the top. I mean you read the nicest [00:32:30] parts of it. And it just shows, I think, such a different perspective about what science is.
Nick Hanauer: Yes.
Alan Krueger: You know to me, science is to be tested.
Nick Hanauer: Yes.
Alan Krueger: And to just assert things from principles without testing just, to me, makes absolutely no sense.
Nick Hanauer: Yes.
Alan Krueger: There are perfectly respectable economic models which have a role where the minimum wage can lead to higher employment. Can help companies fill vacancies, for example. Or in models where aggregate [00:33:00] demand is weak, for whatever reason and wages are too low. Minimum wage could lead to more consumers spending and higher economic activity. So it was just so bizarre to me and there were parts of it which were much more insulting actually. That’s the part that you read.
Nick Hanauer: Well you know what, I can’t resist just pointing out how angry this is, right? Like what a remarkable [00:33:30] sort of a ad hominem attack this is.
Alan Krueger: Well you skipped over the ad hominem part. The ad hominem part accused David Card and me of being camp following whores. Literally, that’s what he wrote. And it was just stunning to me. Our work wasn’t supported by the AFL-CIO. Our work wasn’t supported by any interest group. Yet, to make the accusation that the only people who could possibly, [00:34:00] you know interpret the evidence the way we interpreted it must be people who are carrying the water for somebody or, you know, you use much more provocative language. I thought it was just totally unprofessional, totally out of place. And a sign of insecurity, I think in his beliefs.
Nick Hanauer: But isn’t it more than insecurity? Isn’t it the defense of a world view and a set of ideas that enforce a status construct [00:34:30] that you really prefer?
Alan Krueger: You know I guess my interpretation is, if your position was so strong you don’t have to be so over the top.
Nick Hanauer: Yeah.
Alan Krueger: That evidence would speak for itself.
Nick Hanauer: Yes.
Alan Krueger: And he didn’t wanna go to the evidence. He didn’t wanna allow evidence to be admissible.
Nick Hanauer: Right.
Alan Krueger: And if you take out this block from the edifice, the whole thing crumbles.
Nick Hanauer: Right. At the end of the day that’s it. That’s it.
Alan Krueger: And I think that’s where the insecurity came from. Because here was [00:35:00] a test, pretty compelling one, and in fact, when David Card and I presented work years and years ago in the early ’90s, Marvin Kosters from the American Enterprise Institute was one of our early discussants and, you know, he was really torn and you could see he was visibly torn. ‘Cause he thought the methods we were using were pretty compelling.
Nick Hanauer: Yes.
Alan Krueger: And to his credit, you know he recognized that this was gonna be hard to square with his world view and there’s some people I think who just have difficulty [00:35:30] not fitting the world into a particular structure and take sort of a religious fervor to their approach to economics, which I think it’s just totally unwarranted. I think that’s just not the way the economy operates. That’s not the best way to model the economy.
Nick Hanauer: Yeah.
Alan Krueger: But there’s a strand and Buchanan represented that.
Nick Hanauer: Yeah, it’s so interesting. So I just wanna remind everybody that Alan Krueger here and his colleagues were among the [00:36:00] first investigators of the relationship between raising wages and jobs and, you know, to my mind, demonstrated that there wasn’t any real impact on the number of jobs around when you raised wages and I think that early study, which came out when? The first one? ’90?
Alan Krueger: The New Jersey and Pennsylvania comparison which is the one the one that’s achieved, you know the lion’s share of attention that was published in ’94.
Nick Hanauer: Right.
Stephanie Ervin: But so, Professor will you just lay out for our listeners exactly [00:36:30] what you looked at, the ’94 study and what your conclusions were? ‘Cause I think we’ve sort of skipped over that a little.
Nick Hanauer: Yeah.
Alan Krueger: Sure, so in April of ’92, the minimum wage in New Jersey rose from $4.25 to $5.05 an hour. An 80 cent increase, which you know on a base of $4.25 was a pretty large increase. In Pennsylvania they stayed at the federal minimum wage, which was $4.25 for the next several years. And David Card and I collected data on fast food [00:37:00] restaurants that were located in New Jersey or just across the border in Pennsylvania. And we looked at what happened to employment and wages at fast food restaurants in New Jersey versus Pennsylvania and the data quite clearly pointed to job growth being at least as strong in New Jersey and in some cases, even stronger than in Pennsylvania.
When we were initially criticized by an industry group, which collected data from, you [00:37:30] know, a handful of fast food restaurants, Card and I went to the Bureau of Labor Statistics and we got permission to get the IRS payroll tax data, which the BLS get from the IRS and we could look at what the companies were reporting. So we had even more accurate data, and again, this showed very similar picture. The minimum wage increase in New Jersey didn’t lead to job loss and anything it led to stronger job growth in New Jersey than Pennsylvania.
Nick Hanauer: [00:38:00] And since then there’s been, you know, more and more and more just a huge pile of empirical evidence that essentially corroborates that early conclusion that you really can’t find very much. If you can find any job loss at all it’s in the realm of noise. And certainly that’s been our experience in Seattle where all of the good data suggest that nothing happened except things got better for low wage workers.
Alan Krueger: I think that’s what the vast majority of studies have found since [00:38:30] the work that Card and I did. By the way Nick, I’ll tell you an interesting story, backstory to this. When I started working in this area my expectation was a conventional wisdom, that’s what I had been taught. And the work prior to what Card and I had done was primarily based on time series analyses. You look at periods when the federal minimum wage was relatively high or relatively low. A little bit more complicated than that, but that’s the basic idea and then you could see whether teenage employment was relatively high or relatively [00:39:00] low in those periods. Frantic control for some other things.
And there was the long tradition of running those kinds of time periods models. I was never terribly convinced of them, but they tended to find small elasticity of demand. They tended to support the conventional wisdom that higher minimum wage reduced teenage employment and people would argue about the magnitude, but there was a consensus that that’s what it showed. And then a funny thing happened. In the 1980s the minimum wage did not increase in nominal [00:39:30] terms. Ronald Reagan vetoed minimum wage increases and the real value of the minimum wage fell considerably to the lowest level it’s been in recent decades. Yet, you didn’t see the spurt in employment. You didn’t see teenage employment grow over that period. Actually, it fell. So, if you just estimate those exact same models that have been estimated and extend the time series it add more data, the effect goes away.
Now that’s not supposed to happen. Usually when you add more data if the model is correct you actually get a more precise [00:40:00] stronger estimate, not a weaker estimate.
Nick Hanauer: Right.
Alan Krueger: So that literature had broken down and when I started in this area I thought okay so how do we find a more compelling test? I don’t really find the time series all that compelling. How do we identify a natural experiment where one area had a minimum wage increase and another one, which otherwise would be very similar didn’t. And that’s how David Card and I focused on the New Jersey Pennsylvania comparison and I honestly [00:40:30] thought we would be the guys in the white hats rescuing the conventional wisdom when we came in because anybody, you know, who would’ve been taking this stuff seriously would’ve said the conventional wisdom broke down and yet what we found was more evidence that the conventional wisdom was wrong.
So you would think with that background the profession would have been a little bit more open minded that Buchanan would’ve said well, maybe I don’t have this exactly right. Maybe the world is more complicated that I thought.
So that was the [00:41:00] background behind our work and the other thing I’ll just throw in because you care and most of the rest of the world doesn’t. Another feature of our study was we could look within New Jersey, ’cause there were sections of New Jersey where the starting wage was already above the new minimum wage.
Nick Hanauer: Right.
Alan Krueger: So that formed a control group for the other sections where the minimum wage was pretty low and the minimum wage increased where the starting wage was low. So the minimum wage increase raised wages a lot and that looked exactly like what we found when we compared across the border [00:41:30] from Pennsylvania to New Jersey. So we thought we had pretty coherent evidence and we pushed it pretty far I think. Which is part of the reason why even though the study is now almost 25 years old, the critics still feel compelled to criticize it.
Stephanie Ervin: So we’re five and half, six years out from the fight at Seatac, what do you observe has changed since then?
Nick Hanauer: Okay so we’ve raised [00:42:00] the minimum wage across the country. And there’s no credible evidence that anything bad happened other than companies were required to pay workers more. There’s certainly no credible evidence that it killed jobs and so in yet another natural experiment we’ve discovered that, you know, the minimum wage, in fact, can rise without harming workers or harming the economy in any material way. [00:42:30] I mean to be clear, it definitely can harm corporate profits, but I think as we’ve said many times before, corporate profits are as high as they’ve ever been if they go a little bit lower that won’t be bad for the economy generally. I think Steph, the really important question is why do we have to keep talking about this?
Stephanie Ervin: Right. So what’s your best gut instinct on why we keep having to litigate this question over and over again? Why the dogma in all those years hasn’t changed?
Nick Hanauer: Yeah. And it’s such an interesting question, I think it’s [00:43:00] the question because if you reflect on it, what we did on $15 minimum wage is really not different than anything we’ve done in any of the 22 prior instances where we raised the minimum wage since 1938. We’ve been running this experiment for almost 100 years now. 80, 90 years now. In every single case where you go back and look at what happened [00:43:30] jobs grew after raising the minimum wage and yet, the opponents to the minimum wage continue to make the same argument again and again and again that it will kill jobs. And I think that this dynamic exposes economics or the way in which ordinary people experience economics for what it really is, which is a story that gets told about who deserves [00:44:00] what and why? And, you know, the reason that we keep litigating this issue over whether the minimum wage kills jobs isn’t because it does kill jobs. We keep litigating it because the people who want to keep wages low and profits high have found that that line of argument is the most effective thing they’ve ever found for keeping wages low and profits high.
Again, we said it many times before they don’t say it ’cause it’s true, they say it because [00:44:30] it’s effective and what’s so important for people to recognize is that that’s why this argument never goes away. That this argument will never be settled by facts. Because this is not a contest over facts. It’s a contest over power and status and wealth. And the people who want more status and power and wealth aren’t gonna wake up one morning and say oh we don’t want that anymore.
Stephanie Ervin: Right.
Nick Hanauer: They will continue to want it and they will [00:45:00] continue to try to find ways to get more of it irrespective of the facts.
Stephanie Ervin: Right.
Nick Hanauer: I know it’s so puzzling to normal people. Like people who don’t work with this stuff everyday. Why we keep on? Like, they assume that because we continue to have this disagreement in public about whether the minimum wage kills jobs or not that there’s actually some factual basis for that disagreement, but there’s not. It’s simply an argument over who should get what and why. And that’s [00:45:30] the problem.
Stephanie Ervin: I think one thing I have noticed in the last five years though is that the conversation, the public dialogue really has shifted to wages. I mean republicans aren’t just talking about jobs, they’re talking about wages.
Nick Hanauer: Yes.
Stephanie Ervin: They’re just not talking about the minimum wage, lifting the minimum wage as an answer to how we lift wages. They talk about keeping immigrants out.
Nick Hanauer: Yeah.
Stephanie Ervin: They talk about lowering taxes for rich people.
Nick Hanauer: Yeah.
Stephanie Ervin: To lift wages.
Nick Hanauer: Yeah.
Stephanie Ervin: But they’re not ready to cede that genuinely lifting the minimum wage that people have cash in their pockets directly [00:46:00] would be a way to actually [crosstalk 00:46:02].
Nick Hanauer: For sure and if you’re trying to defend the interests of owners of capital, which is largely what the right does today. To be fair, lots of people in the democratic party too, who are as committed to trickle down economics as any card carrying republican, that’s where you have to go.
That none of these folks wanna just acknowledge that the way to raise wages is to raise wages.
Stephanie Ervin: Right. Go figure.
Nick Hanauer: That [00:46:30] there’s a very simple answer to these questions. That you just simply impose reasonable standards on companies to pay their workers enough to get by without food stamps. This is a very easy and simple way to solve the problem technically it just involves trade offs that lots and lots of people don’t wanna make.
Stephanie Ervin: Like angering rich donors.
Nick Hanauer: Yeah yeah. Like yeah, you just gonna anger all your rich donors. So.
Stephanie Ervin: So where do you think we go from here? You know we started with the fight for 15, [00:47:00] but should we be moving as our economy continues to grow towards 20, towards 30? What’s the new ask?
Nick Hanauer: Yeah and in future episodes we’re gonna talk about this new idea we have which Is called progressive labor standards. And progressive labor standards is an incredibly simple idea that addresses a couple of important economic issues and a political one, which is simple ideas to impose the highest standards on the largest companies. The biggest companies in the country [00:47:30] certainly can afford to pay much higher wages and corporate concentration is a separate, but connected problem to rising inequality. My holding the biggest companies to the highest standard we also hope to create more space for smaller companies and start ups to compete. And if you hold the biggest companies to the highest standard, there’s no reason why those companies can’t be held to a standard for instance of $30 an hour. While it might be challenging of the smallest companies to go to $30, [00:48:00] it is absolutely not a challenge for Walmart to go to $30 although, of course, the shareholders and the executives will squeak and squawk and complain and shout a lot of stuff about socialists.
Stephanie Ervin: So even though we’ve made progress, there’s more work to do. New ideas on the horizon. It’s exciting.
Nick Hanauer: Yep, lot’s to do. Lots of stuff to push for if we’re gonna make an economy that works for everybody.
I’m super excited for the next episode of Pitchfork Economics. In [00:48:30] that episode, we will examine one of the anchor claims of neo-liberalism. Is the purpose of the corporation to enrich shareholders?
Stephanie Ervin: Pitchfork Economics is produced by Civic Ventures. The magic happens in Seattle and partnership with Larj Media. That’s L-A-R-J Media and The Young Turks Network. Find us on Twitter and Facebook @ [00:49:00] CivicAction and follow our writing on Medium at Civic Skunk Works and you should also follow Nick Hanauer on Twitter @NickHanauer.
As always, a big thank you to our guests and thank you to our team at Civic Ventures: Nick Hanauer, Zack Silk, Jasmin Weaver, Jessyn Farrell, Stephanie Ervin, David Goldstein, Paul Constant, Nick Cassella, and Annie Fadely.
Thanks for listening.