Here’s another resource from the archive that will help you wade through the loud and often misleading coverage of the Raise the Wage Act.
Not all minimum-wage studies are equal. Some of the most headline-grabbing negative reports on the effects of the minimum wage were commissioned and promoted by right-wing organizations looking to legitimize trickle-down policies that hurt workers. How can you spot studies that aren’t worth their salt? Economist Ben Zipperer joins Nick and Jasmin to reveal some of the tricks that economists pull, and to help us understand how some studies can conclude that raising wages will kill jobs—even though, as we know, the opposite is true.
Ben Zipperer is an economist at the Economic Policy Institute. His areas of expertise include the minimum wage, inequality, and low-wage labor markets. He has published research in the Industrial and Labor Relations Review and has been quoted in outlets such as The New York Times, The Washington Post, Bloomberg, and the BBC.
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Gradually raising the minimum wage to $15 would be good for workers, good for businesses, and good for the economy: https://www.epi.org/publication/minimum-wage-testimony-feb-2019/
Six reasons not to put too much weight on the new study of Seattle’s minimum wage: https://www.epi.org/blog/six-reasons-not-to-put-too-much-weight-on-the-new-study-of-seattles-minimum-wage/
Studies mentioned in the episode:
New EPI study: The Effect of Minimum Wages on Low-Wage Jobs: Evidence from the United States Using a Bunching Estimator: https://www.nber.org/papers/w25434
Card and Krueger: Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: http://davidcard.berkeley.edu/papers/njmin-aer.pdf
University of Washington study – Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle: https://www.nber.org/papers/w23532
Nick’s twitter: @NickHanauer
Goldy: Hey Pitchfork listeners, Goldy here. With the minimum wage still in the news, we’ve decided to re-release a previous episode on how to spot a bogus minimum wage study with economist Ben Zipperer. If you’re as nerdy and wonky as me, I know you’re gonna love it.
Jasmine Weaver: When people see something that says studies show that the minimum wage kills jobs, they shouldn’t just take it as gospel.
Ben Zipperer: If you were to look at all studies, what you would find is that the average employment effect of the minimum wage is actually really small.
Nick Hanauer: They don’t make these arguments because they’re true, they make them because they’re the most effective way ever devised to make rich people richer.
Speaker 4: From the offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics, with Nick Hanauer. It’s like Econ 101, without all the BS.
Nick Hanauer: I’m Nick Hanauer, founder of Civic Ventures.
Jasmine Weaver: I’m Jasmine Weaver. I’m the Executive Vice President here at Civic Ventures.
Nick Hanauer: In this episode we’re not talking about the minimum wage, we’re actually going to go deep on how economists study the minimum wage, and that’s like a ridiculously wonky thing and probably will test the patience of even our most hardcore listeners.
But it’s so important to understand because how we study the minimum wage is so different from certainly what my intuitions were when I first got into this work, and when you understand how the minimum wage is studied, what the methodology actually is, it becomes really, really clear how easy it is to manipulate that data and how, if you aim to, you can absolutely show anything you want if you so desire.
Jasmine Weaver: Absolutely, and so when people see something that says studies show that the minimum wage kills jobs, they shouldn’t just take it as gospel.
Nick Hanauer: Exactly. And among the things that we’re going to learn on this episode is that there’s a difference between theoretical predictions based on neoclassical economic assumptions, which is sometimes what people in the media will say is studies show that the minimum wage will kill jobs, and that is in turn different from actually empirical studies of what actually happens when you do increase the minimum wage and the broad spectrum of approaches that you can take with respect to that second part, the empirical stuff.
So this is why it’s so important is that if you open up a newspaper or read a magazine, you could read a headline that said that, well, this study shows, you know, the Congressional Budget Office predicts that raising the minimum wage will kill this many jobs, and without being able to know where they got that data or how they developed that point of view, you just have no idea about what it actually means.
On this episode we get to talk to this fantastic economist named Ben Zipperer, who is an expert in the minimum wage and how you study it. And obviously, because so many incredibly rich, incredibly powerful people have a stake in people believing that if you raise the minimum wage it kills jobs, because if that’s true then why would you raise wages, obviously? It has been very, very hard to kill that idea. There’s a big robust and well financed audience for that orthodoxy and they want to maintain it.
But when we talk to Ben, what we’re going to go into is what the methodology actually is, and by so doing we can show our listeners I think more clearly what the difference is between a good study and a bad study and why all of the good studies seem to show that there’s basically no effect, at least up to the points that we have already raised the minimum wage. I mean, maybe at $50 it would begin to be an effect, but certainly up to 15, nothing but good stuff has happened.
Jasmine Weaver: Well great. Well that’s sounds fun. Let’s talk to Ben.
Ben Zipperer: My name is Ben Zipperer. I’m an economist at the Economic Policy Institute in Washington D.C.
Nick Hanauer: We’re super excited to talk to you today, Ben, about our favorite subject the minimum wage. But in particular as one of the nation’s leading experts on the minimum wage and on essentially the methodology of studying the effects of the minimum wage, what we really wanted to do today was unpack how those studies are done.
Because for most folks, even pretty sophisticated folks who care about this issue and follow it closely, it’s very clear that what you actually do is very different from what their intuitions tell them that you do which is simply to count up the number of jobs in a place after a minimum wage increase is enacted. That is very different from what’s actually going on.
What we really want to do is have you explain what economists do so that it can give folks a window into how easy it is, if you want to, to show that a minimum wage increase has harmed people even in a city like Seattle where, for instance, unemployment fell and business starts rose.
So with that, we’d love to dive into the conversation and we’re very excited also to hear about your methodologies. I know that you’re working on some really exciting new things.
Ben Zipperer: Well, these are great topics. Thanks for opening a conversation that way. Why don’t we just start with the basic idea about what modern research does to tease out, let’s say, the employment effects for the minimum wage? That’s kind of the hot topic often, right?
I would say that probably until the 1990s or so, many economists took it as their prior or as what they accepted to be basically the truth that minimum wages reduced the employment of low wage workers. So you raise the minimum wage and that causes it to be more expensive for employers to hire workers and end up hurting the workers you’re trying to help to begin with.
Nick Hanauer: And Ben, if I could just interject for our listeners. That conclusion was a product of taking conventional neoclassical economic theory very seriously, conceiving of the economy as a closed equilibrium system where basically if one thing goes up another thing must go down, that if you raise the wage you push the economy away from the equilibrium more or less.
Ben Zipperer: I think that’s absolutely right. That is coming from a theoretical point of view that hey, employers don’t even really choose wages. It’s just like this thing called the market, supply and demand. It sets wages based on the productivity of the workers that you’re talking about, and that determines their wage and that determines the level of employment.
You can have policies that change that, but you’re going to start changing the level employment as a result, and so that’s kind of like the theoretical prior that you’re talking about.
I would say that there was actually a lot of research that confirmed that prior. However, I would say roughly, in the 1990s, especially with the work of David Card and the late Alan Krueger and some other economists, that research, that empirical research that confirmed that theoretical view, that new empirical research at that time really started to challenge that view.
This gets to this methodology discussion that we’re talking about. Some of the new work that began in the late 1990s and early 2000s really tried to take, I think, very seriously what are the best ways and most compelling ways that we can actually demonstrate empirically the effects of the minimum wage, rather than just picking up something else that’s going on in the economy regardless of the minimum wage?
The classic kind of study that I think has informed modern research a lot is a study by David Card and Alan Krueger that compared what happened when New Jersey raised its minimum wage. They looked at employment in New Jersey at restaurants and compared changes in employment in restaurants in New Jersey to right next door in Pennsylvania.
So this is a very transparent case of you have the state New Jersey that raised its minimum wage. Pennsylvania did not raise its minimum wage. Let’s look at employment on restaurants near the border of Pennsylvania and New Jersey and we’re going to compare what happens before and after in both places.
That idea, that kind of experiment or thinking of the minimum wage increase as an experiment that happened in having both a treated area, like your got a drug trial, the minimum wage is the drug, you’re going to treat some people with the drug, in this case New Jersey, and you’re not going to give the drug to your control group, in this case Pennsylvania. You’re going to look at the changes of the control group and the treated group, New Jersey and Pennsylvania, and you’re going to see what happens in terms of employment.
What they found doing this experiment, what’s sometimes called a natural experiment or a quasi experiment, because you’re looking at the world as though maybe an experiment didn’t really happen. We didn’t do a medical trial or randomize control medical trial, but instead looking at the situation as though it was a random experiment by having a good control group for New Jersey, which is right next door over the border in Pennsylvania.
What Card and Krueger found is that there really wasn’t much of a change of employment. If anything, employment rose in New Jersey after the minimum wage increase compared to Pennsylvania.
Nick Hanauer: Yeah, it’s so interesting. I think it’s true to say that virtually all of the subsequent empirical studies that use that basic methodology have borne out essentially the same finding.
Ben Zipperer: I agree that in my view the best studies, the studies that really do a very good job of taking seriously coming up with a very good control group for your treated group of minimum wage increased places, those studies really confirm that finding and basically find zero employment effect.
Nick Hanauer: And I just want to underscore that what you mean by zero employment effect is that raising wages did not in fact kill jobs.
Ben Zipperer: Yes, absolutely. That’s a much clearer way to say it. Those studies looked at low wage workers, and we can talk a little bit about what that means, but typically young workers, workers without a college degree, maybe workers in restaurants, and looked at, tried to estimate the employment effects of the minimum wage and found that the minimum wage on average didn’t really affect the employment level of those groups much at all.
But it did raise their wages, so they are getting benefits from the policy, but just not really any real downside.
Jasmine Weaver: So, Ben, let’s unpack that a little bit, because that’s pretty striking given the headlines that we see every day, both in states as they consider raising the minimum wage and at the Federal level as they’re considering raising the minimum wage to $15.
We see headlines, you know, raising the minimum wage to 15 will cost 3.7 million jobs. CBO studies says, we see all sorts of studies across the country as states consider this, so you’re saying that the best studies that we’ve seen over the last 25 years show that raising wages doesn’t kill jobs, and yet every day as any jurisdiction considers raising the minimum wage, huge headlines about all of the terrible things that raising the minimum wage is going to do to workers.
Ben Zipperer: Yeah, so I think that’s coming from the fact that there are studies that show negative employment effects. In general, I don’t find those studies very credible, and we could talk a little bit about that, but I think it is the case, in my judgment, that the best studies end up showing very little to no employment effect.
But forget about my judgment. It’s really the average study published since the year 2000.
Like just take all the studies. Forget about Ben Zipperer’s judgment. Just take all the studies, look at the typical estimate and it’s actually pretty small in the sense that the employment effects of the minimum wage estimated by the typical study published over the last 25 years is essentially very small and should not be a concern, especially relative to the actual benefits of the policy that we actually see for low wage workers.
Nick Hanauer: Right. Let’s dive into how you create a study, if you wanted to, that would show that the minimum wage killed jobs.
There’s this very, I would call it, notorious study that was done here that showed that the implementation of the minimum wage in Seattle actually killed jobs and harmed workers.
But when we examined the methodology that the study employed sort of shocked me in the sense that it was so obviously designed to show that result. And you helped us understand the deficiencies of that study. Can you elaborate on that a little bit?
Ben Zipperer: There is this famous study that has been very influential. In fact, just like Jasmine was saying earlier, the Congressional Budget Office, which also came out with a study recently, felt that the Seattle study was important enough to include as influencing their results.
As you all know, Seattle had a very ambitious and large minimum wage increase that was phased in over several years, eventually reaching $15 and beyond, and this study that we’re talking about by a group of researchers at the University of Washington evaluated some of the early stages of those minimum wage increases. I think they had the data to analyze the minimum wage increase up to $13. Or at least that was the latest one that I read.
They start with some pretty impressive data on employment in Washington State and wages in Washington State and the number of hours people work, and so they have all this data on individual level workers. So that’s their starting point. And they know that Seattle raised its minimum wage and the rest of Washington State at that time didn’t really have a large minimum wage increase, so that begins their study. That begins their treated and their control group.
So they have this treated group Seattle, and they have the rest of the Washington State, that’s the control group potentially, or some part of Washington State is the control group, and they have to figure out exactly what the control group is and then they’re going to compare the treated and the control group and come up with hopefully their estimates of how minimum wages affected wages and employment in Seattle. So that’s kind of the lay of the land.
And now to get to the specifics, one of the things that they did is, well, one of the limitations of their data, actually, is that they only have data on Washington State. They don’t have data on, say, Portland or, again, another city nearby. They just have data on Washington State. So all they can do with their data is compare Seattle to other places in Washington State.
Now, it may be that other places in Washington State happen to look a lot like Seattle, have very similar employment trends, very similar wage trends, but it turns out that that’s not the case. It’s very hard to find a very good control area for Seattle.
Seattle, during this time period, right before the minimum wage increase was really happening, Seattle had an extremely hot labor market. Wages were growing very, very fast in Seattle compared to other cities nationally, compared to the nation at large and crucially compared to the rest of Washington State. You’ve just done that basic measure of, like, how fast are wages rising? Right off the bat, Seattle looks very different than the rest of Washington State, and that is a very serious problem.
In fact, I think the main fatal flaw of this University of Washington study is that unfortunately they tried a lot of things that kind of in principle are reasonable do, but unfortunately there just really wasn’t a place that looked like Seattle that they could use to compare Seattle to.
Jasmine Weaver: And Ben, can you talk a little bit about their findings and also why that study has had such a big impact? Because the interesting thing about this study when I think about it is that it hasn’t really had a huge impact in Seattle.
We all look outside our window, we see the economy booming, we walk down the street, we see “help wanted” signs for entry level restaurant fast food jobs at $20 an hour.
Nick Hanauer: 25 now.
Jasmine Weaver: At $25 an hour. So we don’t see what the study finds. But it’s used as a scare tactic.
You mentioned the CBO study, we hear it cited frequently at the national level. We also hear it cited in every single state, in every single city that is considering raising their minimum wage. So why did this study have such a big impact and what did it find?
Ben Zipperer: Well I think very plainly it had a very big impact because I think a lot of people’s prior, or a lot of influential people’s prior is that the minimum wage must harm low wage workers. Anything that confirms that point of view gets a lot of press, and it’s not just press, but that’s actually true.
I mean, just to be very clear, that’s true within the economics profession, so there’s a lot of interesting research now showing that minimum wage research that’s published in peer review journals actually, on average, has a publication bias towards negative effects, that there are studies that don’t see the light of day because they don’t have the right answer or they don’t confirm what this prior that we’re talking about.
So not only do you see this in the media that there’s a lot of bias towards studies that show very large negative effects of the minimum wage, that’s also true in the peer reviewed work, in the economics profession.
So those things kind of combining I think really amplify studies that unfortunately, in my view, shouldn’t be very informative about policy-making.
Nick Hanauer: Ben, wasn’t there another fatal flaw in the methodology of this particular study which is that they did have good data, but only data on single store operations?
Ben Zipperer: Yeah, I think that’s very insightful.
Nick Hanauer: And this is crucial in this case because in the case of the implementation of the $15 minimum wage in the city of Seattle, it was tiered by company size. So the biggest companies raised wages fastest.
The effect of that, of course, is, and if you work in a coffee shop with one location and quit your job and move across the street to work in a coffee shop with multiple locations to do the same work but for $3 more an hour …
Jasmine Weaver: Like Starbucks.
Nick Hanauer: Like Starbucks.
Jasmine Weaver: We have a couple of those in Seattle.
Nick Hanauer: Yeah, that counts in this study as job loss.
Ben Zipperer: This study would pick up that increased change in composition as job losses-
Nick Hanauer: That’s right.
Ben Zipperer: … rather than just shifts of employment around within Seattle.
Nick Hanauer: So this is like the canonical example of a professional study done by professional academic economists that theoretically proved that an increase in the minimum wage killed jobs, but it was so foundationally flawed and obviously misleading.
But what is so interesting is that you keep on using the word priors. I don’t think that’s the right word. It’s preferences. Like if you prefer that minimum wage studies show job loss, this is music to your ears, because obviously if you’re running the Chamber of Commerce, the finding that the minimum wage kills jobs is what enables you to promote policies that suppress wages.
In your profession it may be slightly different, but in the world, if people no longer believe that raising wages kills kobs, then the reasons for not raising wages dramatically disappear, and that has huge financial implications for a lot of people.
Ben Zipperer: I do think that this is why minimum wage research in general, and I think just maybe good empirical research as well, but minimum wage research in particular is extremely powerful in dispelling myths about how the economy works.
I think maybe to interpret what you’re saying, tell me if I’m interpreting it wrong, is that for a very long time I think many people thought or many people promoted the point of view is that we have this thing called the market. If you try to interfere with it, maybe you’re going to redistribute things around but you’re going to cause a lot of harm to the people that you’re trying to help, and in particular if you want to raise wage increased through some policy like the minimum wage, maybe that’s going to help some people, but it’s really just going to cause enormous amount of harm and hurt people overall.
I think that minimum wage research in particular, and some of the best empirical research in general, is showing that actually it turns out that employers choose wages and they pay wages way too low and you can actually have policies that make employers pay higher wages and those will benefit workers without causing these horrible scare stories that we’re talking about.
Jasmine Lever: That’s really well said, Ben. So, one thing I want to close with as we talk about this study is something that’ll probably be very surprising to our listeners which is, this study, which was published I think, first, maybe 18 months ago, almost two years ago, it still gets a ton of play and is cited all over the country, as I’ve mentioned. And it hasn’t even been peer reviewed. This is a study of just some group of researchers that released a draft report and continues to get play across the country.
I’d like to move to your study, on the other hand. You have some really groundbreaking recent work. I think David [inaudible 00:23:04] at MIT, one of the [inaudible 00:23:07] economists and people that talks about the minimum wage called it, I think, the most important research on the minimum wage since the Krueger-Card study that you cited at the beginning of our conversation.
I’d love you to talk about what’s different about the work that you’re doing currently. It’s really exciting and I know you guys are also going through the all important peer review showing your work and it has some pretty groundbreaking findings. So maybe talk about the methodologies that you’re using and then the findings that you’ve found.
Ben Zipperer: Yeah, sure. I think maybe one way to relate this new study that I’ve co-authored with [Aaron Drodget Dubay 00:23:40], [Atillo Glemner 00:23:41] and [Orr Chingez 00:23:43] related to our previous discussion is that there’s a ton of research on the minimum wage and if you were to try to criticize even the best studies, in my view, I think that there are two main drawbacks that prevent us from understanding more fully the consequences of minimum wage increases.
One is that a lot of prior minimum wage work was focused on groups of workers like teenagers. Or maybe restaurants. And while that’s important, I mean, we care about teenage employment, we care about restaurant employment, unfortunately, in this economy, those aren’t the only workers earning low wages.
In fact, for example, most low wage workers are adults. If we were to raise the minimum wage to $15 nationally over several years, 90% of workers who would get a wage increase are not teenagers.
So right off the bat there’s a little bit of a concern about, well, there’s all this research, it’s on teenagers. But what we probably really care about is not just teenagers but all low wage workers, right?
So that’s one thing that we’re trying to address in our study so that we are able to actually look at all low wage workers rather than just teenagers as a group, or rather than just people with limited education and face low wages. But instead we’re able to not only look at those groups but all low wage workers, so that’s the first important thing that we do.
The second important thing that we do is that we kind of build more on what we were talking about earlier about having very careful treatments and control groups, and in particular what we’re able to show is how the minimum wage affects employment for over 130 state level minimum wage increases. So we look at 130 minimum wage increases that happened over the last 30, 35 years or so, and combining this emphasis on looking at all low wage workers and looking at 130 events, we’re able to come up with a suite of, I think, very compelling and interesting findings.
The first finding is that when you raise the minimum wage, when minimum wages were raised over these 138 minimum wage increases, there was effectively no change in total employment. What you did find is that a lot of jobs that you would see that were paying low wages were no longer there in the data and instead you had a lot more higher wage jobs. That’s exactly what you would expect if the minimum wage is doing its job of increasing wages and not reducing employment opportunities.
The second thing that we found is that minimum wages not only raised the wages of very low wage workers earning kind of below the new minimum wage, but they actually raised wages for those just earning above the minimum wage, in our study up to about 3 to $4 more than the new minimum wage. So if you were to increase the minimum wage to $15 nationally, or as you did in Seattle, you would expect workers earning 16, 17, $18 already to also see wage increases so that there’s this positive wage [inaudible 00:27:02] effect.
Nick Hanauer: It is possible to quantitatively characterize how much?
Ben Zipperer: Yeah, so that’s another thing that we’re actually able to do in this study is that providing for a new way of characterizing how much that … sometimes that [inaudible 00:27:21] wave effect is called a spillover effect or a ripple effect of minimum wages across the wage distribution, and so what we find is that ripple effect is there. It does fade out pretty quickly, but it does happen for workers about 1 to $3 above the minimum wage increase.
In fact, if you were to look at the total wage increase induced by an increase in minimum wages, about 40% or so of the total wage increase is due to the spillover effect. So about 60% is due to directly lifting people’s wages up to meet the new wage floor.
Nick Hanauer: And then you get 40% more.
Ben Zipperer: 40% of the total wage increase is due to that spillover effect, so they are actually quite sizeable.
Nick Hanauer: That’s a shocking number. If I can just play the back to you so I’m sure I get it right. If you took a million workers, just hypothetically, who were earning $10 an hour and raised their wages to $15 an hour, that would be effectively $5 an hour, times a million workers, times the number of hours they were working, in extra wages.
But then you would have to add on into the economy as a knock-on effect, as a spillover effect, 40% more than that number that essentially equals the effect of the wages have had on people earning more than that wage.
Ben Zipperer: Yeah, so that’s pretty close. There’s a little bit of detail with how to calculate the percentages, but I think that’s basically right.
Fundamentally, a very large portion of the total wages that we see increased because of the minimum wage, not most of it or not all of it for sure, but a very large portion is employers are not required to raise these people’s wages by law, but they do anyways, and-
Nick Hanauer: Because you have to.
Ben Zipperer: … there are a lot of reasons … You’ve got to. You have to maintain internal pay scales at the place that you’re working at. And it’s also the case that if everyone else is raising wages, you’re going to need to raise wages in order to recruit workers or retain your own workers.
Jasmine Weaver: We talk about seeing stagnated wages all across the country, but we also see that right now a lot of the data nationally is that wages are raising after many years of stagnation, .
One of the things we’ve identified is that a lot of that is largely attributable to jurisdictions that have raised their minimum wage either to 15 or to 13 or to $10. We still have a $7.25 national minimum wage.
So essentially what you’re saying, which is so striking, is that a lot of what we’ve just seen by looking out the window and looking around the world is actually borne out by the research which is it’s not just the people in these jurisdictions that are required statutorily to have their wages raised, but it’s also the people around them that are having a spillover effect.
And so these policy changes have huge impacts well beyond the specific people that the legislation impacts.
Nick Hanauer: Yeah, and if I could jut follow on to what Jasmine said and frame it in slightly different way. As a political matter and as a narrative matter, one of the hardest problems we’ve come up against in this work is what we say to the people who didn’t get directly affected by a $15 minimum wage, and those people legitimately say to us, “Well, what about me?”
Jasmine Weaver: And they’re being told by their bosses that they’re going to get less hours, they’re going to be negatively [crosstalk 00:31:03].
So it’s not just “what about me?”, it’s you’re raising people’s wages below me and my boss is telling me I’m going to get less hours or be fired or other bad things are going to happen.
Nick Hanauer: Yeah, but that’s the usual intimidation tactic masquerading as economic theory. I think, Jasmine, what I’m thinking about is just in my conversations with folks that they legitimately say, “Look, I’ve worked really hard to get from 7.25 to 15. So now these folks are going to get 15 essentially for free. The government is going to impose a new standard and these folks didn’t have to work their way up from 7.25 to 15, they just get it automatically and for free, and that feels unfair to me.”
And I’m very sympathetic to that emotion. I get that. But what Ben’s research is showing is, well guess what? You’re going to get a 40% bump for free too, that when the effect on the market, when we impose these labor standards, is that you get something for free too. It’s not zero sum, that in fact your wages will be pushed upwards too.
This is something I knew anecdotally. Like I’ve run dozens of businesses. It’s just what you have to do both to compete and to keep your teams in tact. But this new data I think is really powerful and interesting and I’m just going to have to process it. It’s definitely not something the people in the world who are litigating these issues understand and are using to great effect yet for use. So, yay, Ben. Good job.
And, look, here’s the truth. The Chamber of Commerce has literally a trillion dollars per year at stake. A trillion dollars. And there is no amount of money and no amount of energy that they aren’t going to devote to getting people to continue to believe that raising wages will harm the very people it’s intended to help, because if they can get people to believe that, then wages will be low and profits will be high.
They don’t make these arguments because they’re true, they make them because they’re the most effective way ever devised to make rich people richer. And ultimately that’s what this is about. This is a tussle over who gets what, and why, which is what economics is.
So, listen, Ben, thank you so much for taking the time to talk to us about this insanely wonky topic, but this is why we do the podcast. I don’t think there’s really any other place that people can go for this kind of detail and understanding, and I’m really excited to get to do this and to talk to you about it.
Jasmine Weaver: It’s always a pleasure to talk to you.
Ben Zipperer: Yeah, thank you, Jasmine, thank you, Nick, for having me on.
Sorry, listeners, that I’m such a nerd, but I really appreciate the opportunity to talk about these issues.
Nick Hanauer: Yeah. I love it. Okay, man. We’ll talk soon.
Jasmine Weaver: Take care.
Nick Hanauer: Okay.
Ben Zipperer: Thank you.
Nick Hanauer: Bye.
So, Jasmine, we did a very wonky interview with a very smart person. How to bring it back to some level of understandability. Is that even a word? But our colleague Stephanie came up with this fantastic list, sort of how to tell you’re being fed a bullshit study about the minimum wage, which would be really fun to share with the audience.
I remember, I can’t remember the comic, who does “you know you’re a redneck when …” Right? Well this is a you know you’re being lied to about the minimum wage when …
Among other things, do they emphasize teenagers? You know, if somebody is talking about how terrible this wage increase will be for teenagers, that they’re grasping for straws, that our problem in the economy obviously is not that we’re underpaying teenagers. Teenagers are largely in school. Our problem is we’re underpaying people in their mid 20s or early 30s who have low wage jobs.
Jasmine Weaver: One of my personal favorites is does it rely on an employer survey for predictions? Any kind of worker standard or change, the business organizations, the Chamber of Commerce love to go and interview employers and say, “Are you going to hate paying your workers more?”
Nick Hanauer: Yes. Are you going to have to fire people because you have to pay higher wages? 90% of them, “Yes.” Okay. So, any sort of employer survey is always a lie.
Jasmine Weaver: And it sounds ridiculous, but if you actually dig into how people get the numbers that they’re presenting in these articles, a lot of times it comes down to employer surveys.
Nick Hanauer: Yeah, absolutely. A related favorite and a frequent one is do they rely on franchise owners who are closing like Subway sandwich stores or whatever it is? The same sort of scare tactics.
Certainly we had a lot of that when we raised the minimum wage to $15 in Seattle. And it’s true that some restaurants closed, but for every restaurant that closed three opened. So obviously it wasn’t that bad. The bad restaurants closed.
Jasmine Weaver: And another one that’s similar is do they rely on surveys of economists? Orthodox economists?
Nick Hanauer: That’s right.
Jasmine Weaver: Are they asking them what’s going to happen just based on their opinion?
Nick Hanauer: Yes, without any reliance on data or empirical evidence or whatever it is, in particular economists who are sort of really wedded to these old neoclassical models.
Because, again, 100% of the neoclassical models do predict that if you raise wages it kills jobs because you move away from the equilibrium and that harms everybody.
As we said a thousand times before in the podcast, there is no equilibrium. It doesn’t exist in a complex adapted system which is our economy.
Another thing is, fake EPI.
Jasmine Weaver: Yes.
Nick Hanauer: So, there are two EPIs in the world. There’s the Economic Policy Institute, which is the good EPI full of-
Jasmine Weaver: Esteemed economists.
Nick Hanauer: … esteemed economists and smart people doing real peer reviewed work on this.
Jasmine Weaver: And that’s where Ben works.
Nick Hanauer: And that’s where Ben works. And then there’s this other thing called the Employment Policy Institute, which amazingly has the same three letters, EPI, which is basically this one dude working in a tiny office in the middle of nowhere that just sort of manufactures nonsense and sends out press releases about how the minimum wage is going to kill jobs, and who basically works for the restaurant association, just sort of feeds reporters propaganda about how raising wages will kill jobs.
And then, of course, the old synthetic alternative trick. Obviously the best minimum wage studies do rely on comparisons, but what we found over the last 20 years is when the comparisons are accurate and when you compare what’s happening in a place like Seattle to a place that is similar to Seattle like San Francisco or another city, the studies confirm basically again and again that there’s no employment effect.
But of course you can make a synthetic alternative any way you want. Like in the case of the [VIGDA 00:38:08] study in the State of Washington, they simply created a synthetic alternative made up of places not like Seattle and got the result that they wanted.
Jasmine Weaver: And also if a study isn’t peer reviewed, it’s something that you should question. There is a process that actually verifies how academic research is done and credentials it, and when you’re looking at a study you should make sure that the study is actually going through that peer review process. Even if it has professors that look legitimate from a legitimate university, if it hasn’t been peer reviewed, basically their work hasn’t been checked yet.
Nick Hanauer: And finally, the old favorite, the old neoliberal favorite, the claim that raising wages will harm the very people we intend to help. If you hear them say that, that’s definitely hitting neoliberal trickle-down Bingo.
Jasmine Weaver: Exactly.
Nick Hanauer: You always know they’re lying when they say that.
So anyway, it was a super interesting conversation with Ben. I realize it was really wonky. For the most hardcore of our listeners, I hope it was really interesting.
Jasmine Weaver: Absolutely, and we’ll be looking forward to seeing the studies when they come out because they’re really exciting and groundbreaking.
Nick Hanauer: Speaking of bogus claims and neoliberal Bingo, in our next episode we’re going to talk about the principle of marginal productivity which is economist speak for, no matter how much you get paid, that’s what you’re worth.
This is Nick Hanauer. You’ve reached the magic voice mailbox where you can leave me a question. All you have to do is state your name, where you’re calling from and your question.
Abby Newcombe: Hi, Nick. My name’s Abby Newcombe and I’m calling from Chicago, and I have some questions for you about the minimum wage.
When I talk to other people about raising the minimum wage to $15 an hour, a lot of their argument against it is that if we raise the minimum wage, then ultimately employers will find a way to do the job with less people and then further isolating people from making a livable wage.
I think this is a valid point with all of the automation that has been taking place, so I’d just love to hear your opinion on how we can ensure that people make a living wage and that also that their jobs don’t get automated out.
Thanks for all that you do. I love listening to the podcast. Hope to hear from you.
David Goldstein: I’m David Goldstein, Senior Fellow at Civic Ventures.
I think Abby raises two questions. One is, will raising the minimum wage to $15 an hour cause automation? And the other is, will that actually kill jobs?
Nick Hanauer: Yeah, so this is the classic pushback against raising wages, and it’s been the same pushback in one form or another since the invention of the minimum wage, whether it was automation or outsourcing or whatever it is.
The basic refrain that raising wages kills jobs because employers will purchase less of it in one way, shape or form is what employers have been saying about the minimum wage since its inception.
What we know from empirical evidence is that although that’s what they say, in fact that isn’t what actually happens, and the reason for that mostly is that when people earn more money they buy more stuff which creates a feedback loop in the economy forcing employers to hire more people to make that stuff.
David Goldstein: Right, and the Congressional Budget Office just released a report which specifically said that raising the minimum wage to $15 would actually increase consumer demand and boost the economy.
Nick Hanauer: Yeah, and a great way to think about it is just to imagine the alternative scenario. Say, instead of the minimum wage being 7.25 an hour, imagine using that trickle-down logic that we reduced it to $3 an hour, which a lot of our trickle-down friends think would be a fantastic idea. Well, now, all these tens of millions of people would earn half as much money and therefore buy half as much stuff creating essentially a death spiral of falling demand.
And so raising wages doesn’t kill jobs, it creates them because, for example, when restaurant owners all of a sudden are required to pay restaurant workers enough so that now even they can afford to eat in restaurants, it’s pretty good for the restaurant business.
David Goldstein: Right, hence our booming restaurant industry here in Seattle.
I think this raises another question to me, another issue, which is kind of this catch-22 that the orthodox economists have, which is on the one hand we have an economy and wages are flat.
One of the explanations for that is that for whatever reason, companies have not been investing in productivity-enhancing technology, i.e. automation, because historically that’s how you raise wages and living standard is you invest in capital equipment that allows you to do more, create more with less labor, and it hasn’t been for the past 30 years. But historically, workers have shared in that increased productivity.
On the other hand they’re telling you if you raise the minimum wage, oh, no, we’re going to have to invest in productivity-enhancing capital equipment.
Nick Hanauer: Right, to kill your jobs.
David Goldstein: So which is it?
Nick Hanauer: It’s neither and both. And so clearly what we want, we want businesses to invest in capital, to make the economy more productive.
David Goldstein: Right.
Nick Hanauer: But we also want workers to have enough power to be able to negotiate a fair split of the increase in value that that creates.
Of course automation will replace some tasks and jobs. Well, it’s super inconvenient for a particular person in a particular case at the micro-scale. At the macro-scale if workers have protections and wages are rising, the economy will get larger and more and more jobs will be created.
It just useful to remember that in 1938 when the first minimum wage was passed, employers said exactly the same thing then that they are saying now, but somehow we pay a lot more wages and we have on the order of five times as many jobs as we did then. So clearly, something, you know.
David Goldstein: Right. So to sum this up for you, Abby, if in fact the owners of capital and the owners of intellectual property get to take all of the benefits from automation, then raising the minimum wage might be bad for workers, but that’s a choice. And if in fact we share these benefits from automation and from productivity broadly with all workers and as we used to do, well then automation actually isn’t a bad thing.
Nick Hanauer: Correct.