Corporate profits are booming. So why haven’t most workers gotten a raise?
For decades, we’ve been told a simple story: work harder, become more productive, and your wages will follow. But what if that story was never really true?
This week, Nick and Goldy talk to Arindrajit Dube—one of the most influential economists shaping how we understand wages, and author of a new book, The Wage Standard: What’s Wrong in the Labor Market and How to Fix It —for a conversation that cuts to the heart of how pay actually works in America.
At a moment when the gap between what the economy produces and what workers take home keeps growing, this episode challenges some of the most fundamental assumptions in economics—and asks what it would take to build a labor market that actually delivers for working people.
Because if wages aren’t just set by “the market”… then they can be changed.
Arin Dube is an economist at the University of Massachusetts Amherst and one of the leading researchers on wages and labor markets. He is the author of The Wage Standard: What’s Wrong in the Labor Market and How to Fix It, and has advised policymakers in the U.S. and internationally on minimum wage policy and labor market dynamics.
Social Media:
Further reading:
The Wage Standard: What’s Wrong in the Labor Market and How to Fix It
MBAs in management lead to lower employee pay, study finds
Minimum Wage Effects Across State Borders: Estimates
NELP Research Brief on Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties
Minimum wage own-wage elasticity repository: a representative estimate of the own-wage elasticity (OWE) of employment from every minimum wage study published since 1992.
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Nick Hanauer:
The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.
Goldy:
The last five decades of trickle down economics haven’t worked, but what’s the alternative?
Nick Hanauer:
Middle out economics is the answer.
Goldy:
Because the middle class is the source of growth, not its consequence.
Nick Hanauer:
That’s right.
Announcer:
This is Pitchfork Economics with Nick Hanauer, a podcast about how to build the economy from the middle out. Welcome to the show.
Nick Hanauer:
Goldy, I am so fired up today because we get to talk to our old friend, Arin Dube.
Goldy:
What a geek you are. You’re all fired up to talk to a University of Chicago trained economist.
Nick Hanauer:
Oh my God. No, but Arin Dube is my hero. Arin Dube is the godfather of the empirical study of the minimum wage and has been such an important-
Goldy:
I just can’t tell you how many other labor economists you’ve just offended.
Nick Hanauer:
I’m sorry everybody, but no, come on. The guy has made such a big contribution-
Goldy:
I know.
Nick Hanauer:
… to our understanding of the impact of the minimum wage on jobs and has been at it for a really long time. And Arin is an economist at the University of Massachusetts Amherst, and he’s got this killer new book out called The Wage Standard: What’s Wrong with the Labor Market and How to Fix It. And we’re just very fortunate to get to spend time with Arin and talk about all these issues. I know he’ll have a very interesting perspective on it. I’m just psyched to talk to him.
Goldy:
Well, I’d add in some pithy comment, but I’ll save that for the outro, Nick. Why don’t we just go talk with Arin?
Arin Dube:
Hi, I’m Arin Dube. I’m professor of economics at University of Massachusetts Amherst and the author of The Wage Standard.
Nick Hanauer:
So Arin, we’ve known each other now for a long time.
Arin Dube:
Yeah.
Nick Hanauer:
Goes back all the way to the early days of the $15 minimum wage-
Arin Dube:
That’s right.
Nick Hanauer:
… which you were super helpful with. And you’ve been grinding on all these wage issues for your whole career.
Arin Dube:
Look, I went into grad school in economics because I wanted to understand how people get paid and why they get paid what they do. So these are questions I’ve wrestled with pretty much since I was a student. I actually did my first work studying minimum wages when San Francisco became one of the first cities to pass its minimum wage back in 2004. So that was my entree into this literature and studying particularly what wage floors do.
Goldy:
You came out of the University of Chicago, right?
Arin Dube:
I did. University of Chicago, especially back at that time, the idea that you may want to intervene in the labor market and set wages was not kindly looked upon. It was a very interesting time because this was the late 1990s, early 2000s. And this was when the profession of economics was just really shaken up somewhat by the early evidence from David Card and Alan Krueger.
Nick Hanauer:
And that was ’94, was it not?
Arin Dube:
That’s right. ’94 was their paper and then ’95 they wrote a book. And in 2000, they published a follow-up responding to critics. And all of that made it a very exciting time to start thinking about it. But I also saw things around myself when I was a grad student. I was actually, even though my degree is from Chicago, I ended up spending quite a bit of time at Harvard. And I in fact worked with Richard Freeman, who’s an economist there. And during that time, I actually saw there was a lot of effort to actually raise wages for Harvard service workers. The book, in fact, is dedicated to Frank Morley, who was a janitor-
Nick Hanauer:
Oh wow.
Arin Dube:
… who worked at the Department of Economics, cleaning the Littauer Hall as a janitor. But here’s the really interesting thing. Frank being a contract janitor was paid less than in-house janitors who worked at Harvard, doing the same job, sometimes cleaning similar buildings on campus, but for a different pay. And that was wild because you could just never expect that to happen if you believe the market.
Nick Hanauer:
Well, if you’re an economist.
Goldy:
The only people who would not expect that to happen. It’s right there in black and white in Mankiw’s book. It can’t happen. It’s impossible.
Arin Dube:
I’m trying to understand how workers like janitors can get paid differently because of contracting. But when I talked to my advisors at Chicago, they would say, “What do you mean by that? That doesn’t make any sense.” And so this was very much of a learning experience. In many ways, I learned more actually just seeing what was going on around me, but also how you could change things. Because as it turns out, after a year long campaign to raise wages, Harvard ended up very substantially increasing wages of service workers and in fact, tying all pay to a floor negotiated by the unions. And in many ways, it reflects a lot of the ideas that I actually propose in the book of how you build standards like that. So this was happening around me, both in the classroom and outside and has deeply affected my own thinking about it and seeing both what can go wrong, but also what can go right.
Nick Hanauer:
Yeah.
Goldy:
That’s where you went wrong being influenced by the real world, because we all know that the more unrealistic the assumptions, the better the model.
Arin Dube:
Well, I will say that the economics of today is in a much better place than the economics-
Nick Hanauer:
Yes, it is. Yes, it is.
Arin Dube:
… when I was in grad school. It’s hardly all problems are solved, but nonetheless, we can have arguments in a more useful fashion.
Nick Hanauer:
That’s right. And you are one of the bright lights of the modern economics, which is why we’re so happy to have you on to talk about this stuff. So just tell our audience just a little bit about the book and just kind of take us through the argument that you’re trying to make.
Arin Dube:
So the core proposition of the book may be of interest to your audience because it says, “Most American workers deserve a raise.”
Nick Hanauer:
Yes.
Arin Dube:
And research shows us why we haven’t been getting one and how we can do it. Okay? So the starting point is to sort of go back to about 1980. And this is not new terrain, but it’s useful to summarize. Look, since 1980, the economy grew by about 75% when it comes to productivity in this country, but wages in the middle grew maybe at most 25% and wages at the bottom even less. So then the question that I really am trying to answer in the book is, why did the labor market stop delivering for most workers? Because in the several decades prior to that, wages and productivities were growing together.
So the answer turns out to be less about impersonal market forces, which often economists focus solely on, like things like technology or trade, these things matter, but it also matters the choices we make. And it turns out the choices include corporate choices, policy choices, and even choices by the economics profession to decide what to pay attention to. The big idea is that wages are not just natural numbers set in some well-oiled job market machine that supply and demand matter. But they matter in an environment that’s teeming with all sorts of different business strategies, pay norms, institutional forces, and even the macroeconomic environment, and your paycheck-
Nick Hanauer:
And cultural influences too, moral and cultural influences on top of that.
Arin Dube:
Absolutely. Absolutely. And ideological influences as well, as I talk about in the book. So your paycheck reflects this employer power, and that is a key thing that people have often overlooked because those employer power can be shaped by a lot of stuff, including corporate ideology. So do you share the gains broadly or do you maximize shareholder return at all costs? It also reflects institutions. Do you have unions that are strong enough to actually set the standards that get adopted perhaps even more broadly? And of course, it reflects policy choices as Nick knows very well. When we stop raising the minimum wage as we did starting in the 1980s for the first time, there are real consequences.
And then finally, and the other part that I think is also quite important is to the extent that we want to make the market work well, having a commitment to being full employment is really critical. And it just turns out after 1980, we spent a lot less time at or near full employment than we did in the decades prior. And these things all kind of come together as they did after 1980 to be a real perfect storm of sorts that really shifted against the workers leading to that big gap in pay and productivity.
Nick Hanauer:
Arin, if you don’t mind, would you just, for our audience, refresh their memory about why it is that your colleagues at the University of Chicago believed that wages always reflect productivity?
Arin Dube:
Yeah. So a basic model of supply and demand we usually teach in our econ 101 courses sort of lays out a competitive labor market. And in that competitive labor market, if one employer decides to offer a lower pay saying, “Well, I’m going to pay a little less.” Well, here’s what happens. All their workers leave and they go somewhere else. And when that competition ensues, all employers are competing against each other to make sure they can attract workers, wages will rise until workers are paid what they’re contributing to the system, to the economy. And that’s what we call the marginal product.
So if the wage at all falls below that, this hyper competition will ensure that the wage comes back up. So everyone basically receives what they are contributing. So it’s possible that some people are getting lower pay, but it’s just that maybe they don’t have the skills. So then if basically some people have not seen their pay rise for many years, the solution is you got to train them. Maybe they have to learn how to code or whatever it is that will raise their skills so they can raise pay. It’s never in that scenario because employers are choosing a low wage strategy.
Nick Hanauer:
Yeah. Interesting.
Goldy:
Did it never occur to economists that maybe when one employer lowers their pay, that creates a competitive advantage that forces the other employers to lower their pay since in fact employers have more power in price setting than workers do?
Arin Dube:
Well, I think the starting point is if you really have this market where employers are just competing so fiercely with each other, the idea that they can go awry somehow and in fact compete downwards just is ruled out sort of as a logical aspect. But that’s because the starting point is flawed. The starting point is it’s absolutely easy for workers to just replace their jobs. As it turns out, that is absolutely not true. In fact, you can start by something really simple. You can just go ask people how easy it is for you to find a job about as good as you have. It turns out only about a third of people say that it’s very or somewhat easy. That’s a kind of a shockingly low number and that turns out to be true even when you ask during periods of low unemployment rate and tight labor markets, even then it’s not all that easy for you to actually change your job.
And when that happens, that means if you, that company paying, let’s say 10% lower pay, you don’t have a mass exodus of workers out the door. Yes, you have a higher quit rate, but it turns out if you’re paying 10% less, your quit rate may be about 2% higher. So it is higher, but not very much. That also means then you have a good amount of discretion of what kind of wage strategy to pursue. And you see this. So you see, for example, UPS and FedEx workers do similar job, both employ around half a million workers and generate something like $150,000 in annual revenue per worker, but they pay very differently. Walmart pays about 25% lower than Target. I can go on and give you many examples, but this is very sort of apparent just looking around.
And as it turns out, even when you follow the same worker going company to company, their pay, not surprisingly, varies by the company they’re working in. And that is the example of what has a funny name in economics, we call it monopsony power. But it’s a funny name-
Nick Hanauer:
It’s the evil twin of monopolies.
Arin Dube:
That’s right. Yeah. So monopoly, of course, is when you have a single seller, a monopsony literally would be if you had a single buyer. No, in reality, that’s not the case. What it means is that the buyer or the employer has a degree of market power, that they have such choice. They’re deciding, well, I could pay a higher wage and have lower turnover in quits, or I could choose a lower pay. And if I’m not bound by any other forces or countervailing power, like for example, a union or policy, then I’m going to choose a wage strategy that is going to be reflecting either my profit or some other value that I have or some ideology that I have. And what’s really interesting is how those pay-setting ideologies really changed over the ’80s and ’90s. One of the most compelling examples comes from a study by Daron Acemoglu, who’s an economist at MIT and co-authors who studied what happens when companies started to hire CEOs who had a MBA.
Now that might seem funny because don’t CEOs always have MBA. And it just turns out that they’re much more likely to today than they were 40 years ago. And this is relevant because especially starting in the ’80s, the idea of the sort of shareholder revolution was really spreading. And so if you actually had a CEO who used to be a worker and they sort of climbed up the ranks, they had a different value system than someone who’s just a freshly minted MBA. As it turns out, when the company switched with a CEO with the MBA, pay fell by about 6% and by almost 10% for lower wage workers, while basically profits rose.
Nick Hanauer:
Executive comp went up.
Arin Dube:
And executive pay went up. Exactly. So this is like the same company compared to other similar companies, just choosing a different strategy based on essentially sort of a business ideology that led to a different outcomes in profits, in wages, but it didn’t change productivity. It didn’t make the company work better.
Nick Hanauer:
The products didn’t get better. The products didn’t get cheaper.
Goldy:
Well, there’s a classic example here in our backyard of Seattle, and that’s Boeing, which historically had been run by engineers until the McDonnell Douglas acquisition and essentially the finance guys from McDonnell Douglas took over the company.
Nick Hanauer:
And then the planes started falling out of the sky.
Goldy:
And then the planes started falling. Right. And they went after the unions and suppressed pay and you had all these other deadly consequences that came from it. But that was a totally different business philosophy than what had built Boeing to be the world’s largest aircraft maker at the time.
Nick Hanauer:
So Arin, I want to zoom in on an area that you have made, I think, almost an unparalleled contribution to, which is the study of the effect of the minimum wage, raising the minimum wage on job laws. Because I don’t think there’s a human alive that’s done more or better work on this than you have. And that’s basically what you devote chapter six of the book to. Can you just speak to this a little bit?
Arin Dube:
Yeah. Yeah. So we have had a federal minimum wage in this country since the 1930s. And from then until about 1980 or so, most years, we raised the minimum wage at the federal level. And so the minimum wage kept up with overall cost of living and actually more than that overall productivity. And then it stopped because President Ronald Reagan decided he did not want to raise the minimum wage and he didn’t. And as a result, we started, as I see it, a long stretch of extremely dysfunctional way of setting wages in this country. So without a federal standard, what happens is that states had to actually step up. So this is the sort of silver lining of this dysfunction, is it gave nerds like myself and nerds before me, like Card and Krueger, a really great way of studying the causal effect of this policy.
Goldy:
A whole bunch of natural experiments.
Arin Dube:
A whole bunch of natural experiments. Natural experiments is the silver lining of dysfunction. And so there we have it. So we can now study what happens if New Jersey raises its minimum wage? Well, how do we know what would’ve happened? Maybe New Jersey would’ve done something else, maybe jobs would’ve risen or something. Oh, let’s look right next door in Pennsylvania. And that’s exactly what Card and Krueger did in their famous 1994 study. Following up on that, I think basically our contribution in some ways was summarized by the word many. Say, let’s do many New Jersey and Pennsylvania cases. Why do one when you can do many?
And we now have the data to do many. And we did that in our 2010 work that compared border counties. And we basically found that, look, the minimum wage goes up, pay goes up in the restaurant sector, which is a major source of employment for minimum wage workforce. And then employment, what happens? Let’s look at both sides. For four or five years afterwards, it doesn’t change. It doesn’t really change at all. So this is a win-win for low-wage workers, and that was really, I think, an important [inaudible 00:21:36].
Nick Hanauer:
But an inconvenient fact for the National Restaurant Association.
Arin Dube:
That is true, but it is interesting because what happened after that, as Nick played such an important role in, is to really push us to do more. And this is important because look, I believe in evidence-based policymaking, but I also know that when the evidence only comes from fairly limited experiments, we don’t know what would happen if we actually do something more bold. We can’t simply avoid doing things that are bold because we have never tried it, right? So we have to balance between those. And in some ways, that’s exactly what happened with the Fight for $15 movement.
Ironically, we engaged in an even more egregious national experiment, the natural experiment where roughly half the country now has gone for more than a generation without raising its minimum wage, to the point where we actually, for the first time, 20 states in this country effectively have no minimum wage because the 7.25 is economically not very different from a zero. So that means that basically 20 states-
Nick Hanauer:
$2.13 cents plus tips is effectively zero, right?
Arin Dube:
Yes.
Nick Hanauer:
Why not just say zero plus tips?
Arin Dube:
Yeah, well.
Nick Hanauer:
Let’s just call it slavery.
Goldy:
Well, Nick, because the employers get to keep the difference between the 2.13 and the 7.25-
Nick Hanauer:
I guess.
Goldy:
… in tips. So this is a way of actually subsidizing employers. That’s why we keep it.
Arin Dube:
But at the same time, we have now states that have taken more ambitious approaches, and then that actually allows us to see what happened for these higher minimum wages. And in a more recent work, that’s exactly what we did. Just again, look at these natural experiments, including the more recent period with higher minimums and continuing to find virtually the same answer. And that is, again, reassuring. And this is where I think the learning that’s happened has really affected pay setting. And not just here in the US, also around the world.
So in 2019, I was asked by the conservative chancellor of United Kingdom to look into the evidence in UK, and they wanted to use that to sort of inform what kind of minimum wage, or as they call it, the national living wage they wanted to set. And I looked to see there was a significant increase also in the 2010s in UK. And when I reviewed the evidence, I found that it was actually quite successful.
Following up on that, the British government decided to move the minimum wage to about two-third of their median wage, placing the United Kingdom as one of the higher standards around the world. One of the things I point out in the book is that none of our states today, none of them actually reach a two-third of a median wage standard. This would require, and it would allow us to actually go higher than we have even in some of the higher states. And this sort of highlights to me that there’s more work to be done when it comes to the minimum wage.
Goldy:
So what you’re telling me, and I never knew this before, is that we have Ronald Reagan to thank because we never could have changed our thinking about the minimum wage without the opportunity for all these difference in different studies to actually compare what happens across borders.
Arin Dube:
Unintended consequences are real, man.
Nick Hanauer:
Okay. So Arin, tell us a little bit about the glorious future.
Arin Dube:
So one of the things that I also talk about in the book is try to sort of build on what we have learned from the minimum wage experiments to try to sort of tackle in some ways a broader problem because like I started with saying that productivity and pay has really not gone together for the typical American worker. It’s true at the bottom, but it’s also true at the middle. The question is, what can we do to help increase and rebuild the middle class? Now, one thing we could do is push the minimum wage even more, which I think we can do some more of, but there’s a limit to that. But here’s what I argue is that, in fact, we should consider having wage standards for lots of jobs. And if that sounds like a radical idea, it turns out most of our high-income peer countries do some variant of that.
It’s in some ways we are an exception. We are an exception where most jobs just don’t have any wage pay standard. And so the good news is we’re actually starting to see this. Even here in America, for example, nursing homes in Minnesota have actually a wage board based on representatives from employers, from unions that actually have set a wage floor for different types of nurses. This is actually a great example of how we can start to rebuild wage standards, again, using sort of our understanding and knowledge of what we have seen with the minimum wages, but taking it more to scale in a variety of context. And I argue that in fact, experimentation like this, it doesn’t require us to solve the broken politics in DC, right? We can do this at the state level and we are starting to see this.
Nick Hanauer:
Although, just to be clear, it’s a good thing we can do it at state level, but it is suboptimal.
Arin Dube:
Absolutely. Look, one of the things that we should do is to really change our labor law and have the kind of sectoral approach that has worked well in many places. I think we should absolutely strive to do that, but we don’t have to simply say, “Until we get there, there’s nothing to do.”
Nick Hanauer:
Yeah, we can’t do anything.
Arin Dube:
Because there’s a lot to be done at the state level. We can start today.
Nick Hanauer:
Okay. Answer me one thing. There must be hundreds of academic studies on the impact of raising the minimum wage on job creation.
Arin Dube:
Yeah. We actually compiled nearly 100 studies that basically show what happens to both pay and wages. And then you can kind of ask, well, what do most of those studies find? We actually have put together a database. You can go look at it. It’s online. We try to update it pretty regularly. It has a wonky name, the own wage elasticity, but it’s a simple idea. The idea is this, when the minimum wage rises, how much does it increase pay for some group of workers, like maybe fast food workers, and how much does it change employment? Of course, if you look at the studies, it turns out there’s some studies that suggest very large job losses. There are also studies that suggest substantial positive job gains. If you take the average, the average is pretty darn close to zero.
It suggests that the typical study has found very small changes in employment for the kind of wage changes that we’ve gotten. As it turns out, I would argue that the studies that are particularly more careful and actually just studies that have been done more recently where there’s better data, those studies tend to find even closer to zero effect or more positive effect in some cases.
Nick Hanauer:
Yeah. I know our opponents would disagree, but I have looked very carefully at the studies that show that there are big job losses and they are super suspect. Because the parameters that they use and the assumptions that they make are just not realistic.
Arin Dube:
There’s a good example that’s relevant. It has to do with Seattle. Okay?
Nick Hanauer:
Yeah. Right.
Arin Dube:
And so I talk about this in the book. So there was a study from the University of Washington that was released that actually found very substantial job loss. The initial working paper, the unpublished version, is one of the… In that database of nearly 100 studies, it’s probably the second most negative estimate compiled. But here’s the thing, and just to be clear, the researchers who did the work, there were definitely very solid economists and they used very solid methods. But here’s the issue. The issues that they were comparing, what happened to the number of jobs paying less than $19 in Seattle? And how did that change? And then how did the number of jobs paying less than $19 change in rest of Washington State? Okay.
And they found that compared to rest of the state, after the policy change, the number of jobs paying less than $19 actually in Seattle fell quite a bit. And they interpreted that as job loss because the minimum wage was under $15 at the time. So they thought that… Now, here’s the issue. There are two reasons why you can have fewer than $19 an hour job. One is that they’re less jobs. The other reason is maybe because they’re paying more than $19.
Nick Hanauer:
Exactly.
Goldy:
Arin, there were literally job ads from Jimmy John’s, not even in Seattle across the border at the time that study came out where they were paying over $20 an hour for delivery drivers.
Nick Hanauer:
Right. Exactly.
Arin Dube:
And cities like Seattle have seen wage and price growth much more than rural areas. And this is going to mean that even if nothing had changed, even if there were no minimum wage, in general, you would have had less jobs paying $19 or fewer in Seattle. So if you are-
Nick Hanauer:
Just to be clear, as I recall, the economists who did that study withdrew it. Well, he recanted with the later studies.
Arin Dube:
So what happened is that-
Nick Hanauer:
Jake Vigdor recanted.
Arin Dube:
… in their published version, they actually do still have that estimate, but they have a very different estimate as well. And that very different estimate is quite sensible. You just follow low-wage workers, they actually lose jobs in Seattle versus outside of Seattle. And doing the second method suggested an employment effect close to zero. Okay? So in the published version, the authors say that they don’t take a stance on which of these, they’re either very close to zero or one of the largest negative estimates in the literature is more correct. I have my very strong view because in follow-up work, we actually looked at nearly 40 cities that passed minimum wages and showed why if you took an approach like the less than $19 measure, you would find, again, a similar problem in suggesting job losses when it was really just wage growth was faster in major large cities like Seattle in this period.
So I think that’s an example. When a study has found very substantial negative effect, look, the reality is there’s some time they’re going to get a lot of publicity as they did. And then over time, however, it’s quite useful to recognize that when we learned more, we actually found that maybe that was not really what actually happened. And maybe the effect of the minimum wage in Seattle was more effective than that the original results seemed to suggest.
Goldy:
Another conclusion from the Seattle minimum wage study was they looked at prices because we get this a lot that, oh, if you raise the minimum wage, that’s why things are so expensive here. And what they found was no impact on any industry except for the restaurant industry, whether it was a small increase in prices.
Arin Dube:
That’s right.
Goldy:
Not in retail, not in hospitality, the hotels. It was just the restaurant industry. How have other studies followed up on that?
Arin Dube:
That’s a great question. So I take the perspective that at a certain level, most people, most voters, if you ask them, “Are you willing to pay a bit more to make sure that we have a strong minimum wage?” By and large, most voters say, “Yes, I’m okay paying a bit more if that means substantial pay growth for people at the bottom.” The studies, and you look at minimum wage effects, they absolutely do find some price effect in the restaurant sector, but you’re also absolutely right. If you look at the overall price level, it’s a very small impact. It’s largely in the restaurant industry, that’s where you actually see the prices, but these are relatively small price increases compared to any of the wage gains that occur. So as a result, you can take in any price effect. Most consumers don’t really notice much, and even as the wage gains at the bottom are very much noticed by the workers and their families.
Nick Hanauer:
Yeah. And just to level set for the audience, I think what’s really important in this price discussion is to keep in mind the fact since 1980, more or less, the wage share of the economy has gone from something like 52% to 45%. While the profit share of the economy has gone from something like 5% to something like 11% or 12%. So it’s a 6-ish, 7% share of the economy that went from wages to profits. And 6% of 24 trillion is, that’s a lot.
Goldy:
It starts to add up, right?
Nick Hanauer:
It’s a trillion and a half dollars or something like that. And what that means is that you could take a trillion and a half dollars of corporate earnings, give it to workers in wages, and prices would not have to change one cent. So there’s a lot of room in the economy for working people to earn more without consumers having to pay more. We have just gotten used to a world in which corporate profits are outsized.
Goldy:
But there’s other factors as well. There’s lots of studies showing, particularly in the restaurant industry, that when you increase wages, you get less turnover, higher productivity. It actually lowers other costs.
Nick Hanauer:
If you were king and you could do one thing, anything, what would you do?
Arin Dube:
Yeah. I think one thing that I would certainly do is commit to full employment. And in the last five years, we’ve actually seen pay gap between the 10th and the 90th percentile. That gap actually shrink by about a third of the increase in that gap that happened between 1980 and 2019. So if that’s a little confusing, what I’m saying is that this one measure of pay inequality, the gap between the 90th and the 10th percentiles, a third of the increase that occurred in that inequality in the post-1980 era was reversed. And that happened because of two reason, full employment and minimum wage. Okay?
Nick Hanauer:
No, I’m going to push back on that. The reason that happened is because the top 1% left everyone else behind. If you were to compare that gap between the bottom and the real top, it expanded.
Arin Dube:
Oh, absolutely. Now I said one measure. You’re right. The 1% share of income is definitely not something that has fallen.
Nick Hanauer:
No.
Arin Dube:
The pay however-
Nick Hanauer:
And that gap has widened, has it not?
Arin Dube:
The wage gap between the bottom 10th percentile and say the 90th or the 95th percentile even, that has shrank largely because we saw very strong wage growth at the bottom during a very tight labor market. Okay?
Nick Hanauer:
Relative to the 90th percentile, but not relative to where the real money is being made in the economy, which is in the top 1% or 2%.
Arin Dube:
This is the way, what I would say. I would say that, look, full employment and tight labor markets can be very effective, but they will.
Nick Hanauer:
100% agree.
Arin Dube:
… only work for periods of time. And even in the best case scenario, they will not deliver all the things that we want. And this is where if I really could really institute a different governance system in this country, I would absolutely move towards sectoral bargaining, having sectoral standards that make sure that we’re really building a strong middle class in this country because that can really happen.
Goldy:
You had used earlier, you had compared UPS and FedEx. And one of the big differences between those two companies is not just their pay, but the fact that UPS is unionized and-
Arin Dube:
That’s right.
Goldy:
… FedEx is not.
Arin Dube:
Absolutely.
Goldy:
And absent a strong organized labor movement, sectoral bargaining is the next best thing.
Nick Hanauer:
Well, we have gone over our time, but this has been an amazing conversation. Why do you do this work?
Arin Dube:
This is what really gets me up in the morning. I want to understand why people get paid, what they do, and how we can give more people a raise.
Goldy:
One of your words of wisdom, Nick, that I have repeated often is-
Nick Hanauer:
Do I have words of wisdom?
Goldy:
Yeah, you do. You come up with these pithy phrases like when workers have more money, businesses have more customers-
Nick Hanauer:
Okay. Good point.
Goldy:
… and hire more workers, and that’s a great one.
Nick Hanauer:
That is why they pay me the big bucks after all.
Goldy:
That’s right. But here’s another one. Speaking of being paid big bucks, okay? You have said repeatedly, employers don’t pay you what you’re worth. They pay you what you negotiate.
Nick Hanauer:
Yeah, what you have the power to negotiate.
Goldy:
Right. And I bring that up with Zach every year during our annual review to no avail because I don’t have any power.
Nick Hanauer:
Yeah, right.
Goldy:
But you still pay me well. Yeah. Yeah. And it turns out that when you look at the minimum wage, when you look at the wage standard, that is just-
Nick Hanauer:
Absolutely. As much as I love Arin and value his work, what drives me bananas still is the fact that he has to do the work. Now, I think that the best and funniest part of that conversation was when he told us that the silver lining of the debacle, which is the American economy over the last 40, 50 years, is it provided all this opportunity for people like him to do really interesting studies, which is so good.
Goldy:
In the end, and I think there’s this deep irony here that it’s Ronald Reagan who set this in motion. Ronald Reagan, who put an end to the routine increases in the minimum wage. Remember, Arin says that he would start off, he would try like two thirds of median wage, setting the minimum wage to that. Historically, when the minimum wage was first implemented, and this was picked out of thin air, it was 50% of the median wage.
Nick Hanauer:
Yes.
Goldy:
The minimum wage was set at 50% of the median and the overtime threshold was three times the minimum wage, and these were just random numbers with no empirical evidence to support it. But decade after decade after decade, and I think I did the right number of decades at that point, because it really was for only three, three and a half decades, we raised the minimum wage to keep it… We’d jump ahead and then fall back, but we were shooting for that 50%. And then Reagan comes along and is like, “Nope, we’re not going to raise the minimum wage anymore. Screw the poor.”
And based on this idea that you learn in your econ 101 textbook, they literally still use the minimum wage as the textbook illustration of supply and demand, of that inverse relationship between price and demand that if you raise the minimum wage above that equilibrium price, you will get unemployment, you will lose jobs and nobody really studied it. And it turns out I didn’t realize one of the reasons why was not just because there was a, and there was a kind of cultural prohibition within the field of economics to study something as basic as this, but also nobody could study it in the way that Card and Krueger eventually had an opportunity to do.
Nick Hanauer:
Yeah, it never occurred to me. Yeah, yeah, yeah. No, you’re right.
Goldy:
I’ve used this story to just badmouth the economics profession, but it turns out it created an opportunity to do this study. And the reason why I think this is so ironic, and we’ve talked about this before, is that the minimum wage is a wedge issue in economics. Because it proved one of the most fundamental assertions of economics, of neoclassical economics, that inverse relationship between price and demand, it proved that it was wrong, that economics was wrong about one of its core assumptions, a main principle that everything else is built on top of. And if it’s wrong about this, what else is it wrong about?
Nick Hanauer:
Yeah, pretty much everything. Yeah.
Goldy:
Right. And I think these minimum wage studies, these minimum wage hikes, these state and local minimum wage hikes and the studies that followed up that show no disemployment effect or very little, sometimes employment gains and no significant increase on prices. It’s just opened up the entire field of orthodox economics to a reevaluation and reanalysis and a whole new way of trying to understand how the economy works. So thank you, President Reagan, we thank you for your service.
Nick Hanauer:
Yeah, yeah, whatever. But anyway, I just think that the frustrating part is, and the work that we’re trying to do to make this different is to start with a framework that with this massively asymmetric level of scrutiny. Where anything that benefits poor people requires a massive amount of studies to prove that it’ll do no harm. But no study has ever been done on the job killing effects of Wall Street bonuses, which clearly kill more jobs than the minimum wage does, right? Because if you took all that Wall Street bonus money and gave it to working people, all of them would have twice as much money. They would buy twice as much stuff. And there would be twice as many jobs, right? That’s a little bit of an oversimplification, know what I mean, right?
And that is the neoliberal paradigm. The neoliberal paradigm is Arin Dube’s source of permanent employment because it requires you to continue to prove that the most basic things to do to hold the society together do no harm. And it’s just incredibly nuts. And saying that the principle of marginal productivity obtains, except if the economy isn’t perfectly efficient, would be like saying that the moon is made of cheese, except if the laws of physics obtain. It’s just not how the world works.
Goldy:
And it’s the difference, the standard of proof that’s required for something that benefits workers versus something that benefits Wall Street. It’s entirely different. It has been 35 years since that Card and Krueger study came out. And as Arin said, there’s been hundreds of studies since. Most of them in the past decade, because that’s when we’ve had this surge of local minimum wages, and the evidence, the empirical evidence is overwhelmingly clear that there is no disemployment effect. And yet, there’s a lot of people who still don’t accept it because-
Nick Hanauer:
It’s not convenient to accept.
Goldy:
… the theory just says otherwise, and they’re not going to accept it. In any case, we highly recommend the book. It is The Wage Standard: What’s Wrong in the Labor Market and How to Fix it. You can, of course, buy it from that big online monopolist who shall not be named or from your local independent bookstore.
Freddy:
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