Today, Arin Dube, Professor of Economics at the University of Massachusetts Amherst, joins us to discuss his latest research, which suggests that the American labor market is undergoing a remarkable transformation. The widespread wage inequality that rapidly expanded between 1980 and 2019 is finally reversing, and American paychecks are growing again—especially at the bottom end of the income scale. In this enlightening conversation, Dube explains how and why the labor market has changed, how that’s affecting wages, and how it all contributes to a virtual cycle of middle-out economic growth.
Arin Dube is a Professor of Economics at the University of Massachusetts Amherst, well-known for his expertise in labor economics and public policy and his groundbreaking empirical research on minimum wage. His work often involves empirical analysis and utilizes large-scale datasets to provide evidence-based insights into the effects of various policy interventions. Dube’s research has been widely recognized and cited, contributing to the ongoing discussions among policymakers and economists around labor market dynamics and policy design.
Twitter: @arindube
The Unexpected Compression thread https://twitter.com/arindube/status/1724147807563477440
NBER Working Paper https://www.nber.org/system/files/working_papers/w31010/w31010.pdf
Website: https://pitchforkeconomics.com
Twitter: @PitchforkEcon
Instagram: @pitchforkeconomics
Nick’s twitter: @NickHanauer
Nick Hanauer:
The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.
President Biden:
It’s time to build our economy from the bottom up and from the middle out, not the top down.
Nick Hanauer:
Middle-out economics is the answer.
President Biden:
Because Wall Street didn’t build this country. Great middle class built this country.
Nick Hanauer:
The more the middle class thrives, the better the economy is for everyone, even rich people like me.
Speaker 3:
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’m so excited today that we get to talk to Arin Dube who is one of our absolute favorite economists and who has been incredibly useful and consequential in characterizing the job effects of minimum wage increases over the last 10 years. It’s been a long time since you and I talked to him. We talked to him in the early days of the $15 minimum wage.
Goldy:
Right. And I think you and I first talked to him together, it was like early 2015.
Nick Hanauer:
Yes.
Goldy:
It was as the minimum wage, the $15 minimum wage had started to be implemented in Seattle and there was a big media battle-
Nick Hanauer:
That’s right.
Goldy:
… over public perception. Yeah.
Nick Hanauer:
Yeah. Those were in the days when everybody truly had thought we had lost our minds.
Goldy:
Uh-huh. And Seattle would be a wasteland.
Nick Hanauer:
That’s right. But Arin has gone on to do some of the best work characterizing the effect of raising wages. And the empirical evidence, as we have told our listeners a thousand times, has been quite clear that there has been effectively no increase in job loss. And in fact, the best new evidence suggests that the more you raise the minimum wage, the more jobs are created.
But he has gone on to do lots of really cool research and in particular has a new paper out now with a couple of other really important economists, David Autor and Annie McGrew, on the recent effects of the Biden Administration’s policy agenda that has massively tightened the labor market. And that tight labor market has led to remarkable, almost historic wage gains for people in the lower part of the income spectrum.
Goldy:
Lower and middle.
Nick Hanauer:
Lower and middle, right. That’s right. The bottom 80% basically.
Goldy:
Right. The majority of workers.
Nick Hanauer:
Yeah, the majority of workers. And it’s a very exciting paper and very interesting work. And it will be just great fun to catch up with Arin and go over this data and hear more about it.
Arin Dube:
So, I’m Arin Dube. I’m a professor of economics at University of Massachusetts Amherst. I’m a labor economist by training. I study the labor market, in particular wages, jobs and inequality. And one of the things I’ve done a lot of work on is studying impacts also on policies like minimum wages, as well as other institutions like unions.
Nick Hanauer:
So, what we wanted to talk to you most about today is the recent research you did with David Autor and Annie McGrew about competition in the labor market and the effect that the Biden administration’s policies have had on wages in the labor market. So maybe you could just kind of explain what you looked at and why you did it and what you found.
Arin Dube:
So, let me start with why we looked at it and what’s the context. So, the context which some of your listeners probably are aware of this is that since about 1980 or so, we’ve seen a lot of growth in inequality in America. The gap between the top and the bottom has grown a lot and that actually means generally those folks at the bottom haven’t done very well.
So, wage inequality rose a lot between 1980 and about 2015 or so especially. But here’s the thing, in the last four or five years, we’ve seen a pretty surprising reversal of some of that. And what I mean by that is we’ve actually seen wages grow the strongest at the bottom, followed by the middle, followed by the top since 2019. That is exactly the opposite of the pattern between 1980 and 2019 which basically saw a lot of growth at the top and the smallest growth often at the bottom.
So, we’ve really flipped the script in some ways. Now again, to be sure, we haven’t solved all the problems but certainly, we’re going in the right direction. And so, we wanted to understand what’s behind these patterns because obviously it’s something that we actually would like to see more of.
So, one of the key things that really make sense of this is you have to step back from the simplest models of the labor market. The simplest Econ 101 model says there’s supply and demand, so there isn’t really room for other stuff. But in reality, there’s a lot of evidence that the labor market isn’t really that perfectly competitive benchmark that we sometimes think it is. Instead, there’s a lot of employer side power, monopsony power. And they’re good jobs and bad jobs and employers have some choice in deciding what to do.
And the key thing is that when the market’s not very competitive, employers actually have more leeway to pay lower wages. So, what’s happened in the post-pandemic period is that we have a very tight labor market. And a tight labor market is a great antidote to that employer side or monopsony power.
And what we’re seeing is workers are leaving the worst paying jobs. So their departures are now more sensitive to what kind of policies, what kind of pay policies their employer is pursuing. A company that’s paying lower wage is going to have a harder time keeping their workers around. And that’s exactly what you’d want to see if you have a more competitive market. And that’s what we have.
And so we’ve seen workers being able to leave the worst paying jobs and getting into better-paying position which has actually pushed wages up from the bottom helping again erase a good chunk of the growth in inequality since 1980. In fact, what we found is that just in the last four years, about 40% of the growth in the gap between the 10th and the 90th percentile which is kind of a good way of measuring overall inequality, 40% of that was reversed in just four years which is a pretty big deal.
Nick Hanauer:
Yeah, that’s amazing. So, how do you distinguish just in the data between people leaving, exiting firms that pay low wages and going to firms that pay higher wages and people staying at firms that pay lower wages but who were forced either by the minimum wage or by tight labor market to pay higher wages for those formerly crappy jobs? How do you distinguish between those two things?
Goldy:
Rising wages within a job versus getting higher wages by switching jobs?
Nick Hanauer:
Yeah.
Arin Dube:
Exactly, exactly. That’s a great question because here’s the thing. When there’s a tighter labor market, you think both of those things could happen, right?
Nick Hanauer:
For sure.
Arin Dube:
On the one hand, I may feel a little less nervous going to my boss and saying, “Hey, you know what? Where’s that raise that you told me I was going to get?”
Nick Hanauer:
For sure.
Arin Dube:
“I’d like that now. Thank you very much.” Or I could say, “You know what? Actually, I just found out there’s some better possible jobs out there and I’m just going to look and see if I can get something.” So, both of those are possible.
So here’s what we did. We looked to see where the wages were rising more because in our data, we can look to see if someone changes a job or someone stays at the job. So if you follow the same person over time, you can say, “Okay, well, Nick’s wage just rose compared to last year. Did Nick change their job or is Nick still at the same position, same employer.”
And so by tracking people’s change in their employer, we can actually decompose that or really parse that wage growth into stairs versus levers. And what we found is that the bulk of the wage growth and the bulk of this compression in wages where we document is happening from people changing jobs, not just staying at their current position.
Nick Hanauer:
Interesting. And so, boy, we’re on thin ice here in characterizing this but is it possible to ascribe percentages to those two things? Is it 70% one thing and 30% another or 50? I recognize this may not be how you looked at it, but you know what I’m getting at.
Arin Dube:
Yeah, sure. So I think it’s safe to say that the majority, more than 50% is coming from people changing jobs in terms of how much that contributed to compressing the wage gap between the top and the bottom. So, the majority of that compression is happening through people changing jobs, certainly a safe thing to say about the data.
Nick Hanauer:
And when you say they’re changing jobs, I’m sorry to keep driving on this, but what does it mean to change a job? If I stay at the same firm, can you tell if I’ve changed jobs or do you have to change firms in order to see that I’ve changed jobs?
Arin Dube:
Yeah. So, let me be more precise. When I say job, I mean employer. So when I say someone changing job, I mean they’re changing who their employer is. So they’re going from a lower-paying company to a higher-paying company, so typical.
Nick Hanauer:
Okay. So there’s another possibility which is I’m at a company that pays crappy wages but they promote me and I get more money or something that I go from X to Y level or something like-
Arin Dube:
Right. So, that could be-
Nick Hanauer:
Part of it too?
Arin Dube:
That could be something that happened. But here, we’re specifically looking at when people are changing their employer.
Nick Hanauer:
Great, great, great.
Arin Dube:
And what’s interesting is that this is actually, there’s a parallel to something else that I know you take great interest in which is what happens when the minimum wage rises. So we have actually growing evidence that when the minimum wage rises, I think the bulk of the evidence suggests that there aren’t much effect on the overall employment of low-wage workers. But nonetheless, there is actually some reallocation that happens.
So, it is the case that the lowest-paying employers may have harder time holding onto workers because now, workers actually end up moving to somewhat better-paying firms. So, that reallocation is actually kind of similar to what happens when the market gets tighter.
Nick Hanauer:
Yes.
Arin Dube:
Again, it puts pressure on the lowest-paying employer who now basically are going to have a harder time holding onto their workers and so we see workers move towards higher wage companies. And the interesting thing is these are also typically higher productivity companies. So that’s actually what we call a double dividend because you’re improving the functioning of the labor market besides raising wages which is great.
Raising wages is great but if it did nothing but that, that’d be still great. But it’s actually even better than that because you’re actually moving people to higher productivity jobs.
Nick Hanauer:
That’s right. And from my own point of view, I think that one of the reasons why we have seen productivity decline in the United States is that there’s no incentive for firms to invest in productivity-saving technologies because if you could pay people $2.13 plus tips, who cares? They’re effectively free. Why would you invest in equipment or processes that would make the economy overall more productive?
Arin Dube:
Yeah. So, one of the really interesting things is that in general, if you have a vibrant dynamic labor market, you are going to have people generally moving up that productivity chain as it were. In general, you’re going to see this kind of people moving to better jobs over time. And that’s what we call the job ladder.
And so the vibrant job ladder is a good signal that the economy is generally doing pretty well. Here’s the thing. After the financial crisis, the job ladder broke down completely. And pretty much between 2007 and 2018 or so, there was pretty much very little movement up that wage chain, like the kind that we were finding now.
So, that tells you again that essentially if employers don’t have to worry about really being able to keep workers around by even paying lower wages, why bother or why invest in the kind of productivity gains that otherwise may be beneficial? So this is fundamentally why I think a tight labor market is so critical for an economy to do well where employers actually are actively competing for workers and trying to figure out how to make the businesses work better. If you don’t have that, it encourages laziness amongst other things on the employer side.
Nick Hanauer:
Yeah, absolutely.
Goldy:
Those lazy employers. You’ve raised so many questions. I don’t know that we’ll have time for me to ask all of them. But I want to start by just establishing the facts because we often see in the media, either from Republicans or from the press that, “Oh, the reason why Biden is suffering in the polls is because of inflation.” That inflation really hurt low and middle-income people the worst and they’re still suffering from higher prices.
But that can’t be true and real wages having been going up at the same time. That’s contradictory evidence.
Nick Hanauer:
Well, the perception might be true because people are emotional creatures but-
Goldy:
Well, I see people cherry-picking data to prove that it is true. So, establish the facts, real wages rising mean that’s wages against inflation, right?
Arin Dube:
Exactly, exactly. So, it’s really important to keep in mind that if you want to understand how people are doing, you got to look at both sides of the ledger. What’s happening to prices of course is really important. And it’s also important to see how much people’s nominal wages are rising. And if those are rising similarly, then real wage is not changing much one way or another.
But here’s what’s happened. Real wage today for those workers in the middle of the pay scale today are higher than they were before the pandemic. But not only that, they’re higher than you would have expected if real wages for the middle were growing at a rate similar to just before the pandemic meaning they’re above trend.
So not only are workers, those in the middle of the pay scale, have greater purchasing power today than they had prior to the pandemic, they actually have a greater increase than you would’ve expected based on the pre-pandemic performance which is quite a remarkable thing if you think about it given how disruptive the pandemic was.
So, that is just a really important thing to understand. And now you may wonder, “Okay. So you say people in the middle but what about other folks?” Well, actually if you’re at the bottom, we just grew even more. So, that’s actually again a remarkable finding which is that we have seen even stronger wage growth at the bottom. It’s only people at the top like let’s say the 20% or so of the top 20% of the wage distribution where incomes actually haven’t kept up as much with price growth if you compare the last four years. Though I will say in the last year, especially in ’23 and ’24, we are seeing broad-based wage growth for everyone.
But it is the case that the bulk, the vast majority of workers in America have seen their wages grow faster than inflation. Let me be really clear. Inflation was really difficult and it was very painful and there’s no need to not acknowledge that. But the reality is that we’ve also seen wages grow, especially in 2023 where we saw just very, very strong wage growth across the board that has placed us at a place that’s actually better than we would have even thought possible back in 2019 which is again just remarkable.
And here’s the other thing. This didn’t have to happen. And if you don’t believe me, just look around. There’s lots of countries and America stands out in our ability to actually have seen this kind of wage growth that rides out this inflationary period and comes out ahead in wages than prices. That is not the experience in most other pure countries.
So, this again to me is a clear testament to our really prioritizing healing the labor market as this president did. And not every country did that. Most countries didn’t pursue the type of fiscal policy that we did. And I think that speaks for itself because if you didn’t do that, then you would be left with still a bulk of that inflation anyway without the wage growth to show first so far.
Goldy:
And this is very different from what we did after the financial collapse.
Arin Dube:
Absolutely. I think it really highlights the loss, the really kind of a decade or so of loss that we unnecessarily suffered because we failed to prioritize healing the labor market. That’s why we didn’t have really people moving up the job ladder. We didn’t have wage growth.
Actually, interestingly, between 2015 and 2019, we did have some wage growth, but that was really driven by minimum wage policies in the 30 states that actually have state minimums. And that was really important. But in the last four years, we have seen wages growing at the bottom even in states that don’t have minimum wage and that’s coming from the tight labor market.
Going forward, of course, ideally we have both of those things because that’s what a balanced policy portfolio would look like. But thank God that given that it’s been shameful 13 years that we haven’t raised the federal minimum wage, well, if it wasn’t for the tight labor market, the folks in those other 20 states would be really hard-pressed to see any kind of protection against this type of inflationary period.
Nick Hanauer:
In the Project Syndicate piece that you wrote, and I’m just trying to get a handle on the numbers, you claim that American workers wages have increased 2.8% since 2019. And by that, you mean accounting for inflation?
Arin Dube:
Exactly. So, that’s real wages accounting for inflation.
Nick Hanauer:
Okay. So, people are basically 3% better off than they were in 2019 in the middle of the income distribution, correct?
Arin Dube:
Again, it sort of differs depending on the data but that’s the least that it grew. In other data, I’d suggest it may have grown more about between 2019 and 2023 by something around 5%.
Nick Hanauer:
Wow. Okay. And how-
Arin Dube:
So, in general-
Nick Hanauer:
And obviously, this has improved rather quickly in time. If we had been having this conversation a year ago, these numbers would not be as good, correct?
Arin Dube:
That’s correct. So, if we were having this conversation a year ago, it still would have been the case that wages in 2000, early 2023 were higher than they were in real terms than 2019. But I would have also had to tell you that in the last year before then, things weren’t looking that great. And this was like the height of the inflation periods.
2022 was not a great year because inflation was just so high that except for people at the bottom quartile or so, the bottom 24% to 25%, those folks still actually were seeing positive real wage growth, but other folks less. But since in really the last year and a half, we have seen a really strong performance across the board and leading us to this place where we actually have much higher real wages than we did.
Nick Hanauer:
And obviously, two things happen over the last year, year and a half, is the higher prices have moderated dramatically as the supply chain shock sorts itself out and wages went up at the same time. So this last year has been a year of remarkable sort of improvement in the circumstances of most people. That’s what I’m getting to. Yeah.
Arin Dube:
The last year has been a remarkable improvement, a remarkable improvement that some people said was impossible, that we could not possibly see the inflation fall while the labor market continued to deliver strong jobs and wages to the American workforce. And yet that’s exactly where we are. We have seen unemployment remain low while inflation fall delivering the Goldilocks sort of economy that people who were supporting a strong fiscal policy always said eventually, this is where we want to land. And that’s where we landed.
Goldy:
So, before we get into some of the specific policies, because you title your Project Syndicate piece Credit Bidenomics for Rising US Wages. But before we get to the administration, I want to talk a little bit about the Federal Reserve because I see a lot of commentators giving them credit for achieving that soft landing and yet the whole point of raising interest rates was to drive up unemployment, was to soften the labor market.
So, to attack that alleged wage price spiral, they raised interest rates, unemployment remained below 4%, the job market remained tight. Did the Federal Reserve achieve anything with these interest rate hikes other than maybe driving up inflation through the housing market?
Arin Dube:
So, I think what is safe to say is that the notion that we needed to raise unemployment rate in order to bring down the inflation rate, that has been proved very well.
Nick Hanauer:
Yes.
Arin Dube:
So we did not need to do that. And that really is consistent with the idea that there were pandemic-related supply side especially, but maybe even demand side. There’s pandemic-related challenges that we’re going to resolve themselves and that’s what exactly happened. And that did not require basically to make American workers suffer needlessly as it turns out in order to bring down the inflation rate.
So I think that now, what exactly did the interest rates due, that’s going to get debated out. Did it have any impact? I mean, I think suffice it to say, it probably didn’t have a huge impact. It’s hard to imagine it having had a huge impact not affecting the unemployment rate.
Having said that, let me say that I do worry that the longer we keep up the interest rates, we do raise the risks that it actually does have some negative impact which is why I think that going forward, I’d like to see the Federal Reserve really starting softening the interest rate policy so as to not jeopardize this really good labor market that we actually have.
Goldy:
So, is the natural rate of unemployment now 3.8%?
Arin Dube:
Well, it certainly is not 5%. You laugh but many years, the economists were convinced that the natural rate was 5%. Basically, we spend a lot less time under 5% unemployment rate after 1980 than we did in the decades prior. And I think in part that was fueled by misperceptions and mistaken beliefs about what does the right tight labor market look like. And I think we caused unnecessary harm to millions of American workers by really pursuing policies where we thought that we shouldn’t see unemployment fall too much and maybe even stay no lower than 5%. I think that was very costly for American workers.
Nick Hanauer:
Yeah. But it did work out super well for people like me.
Arin Dube:
I mean, it’s possible that it would’ve worked out even better. But it certainly … Yeah, I mean, I think, yeah.
Nick Hanauer:
So, talk to us just a little bit more about the policy interventions that you think made the biggest difference and then let’s pivot from that to the glorious future.
Arin Dube:
So I think that fundamentally, we pursued a fiscal policy that really focused on healing the labor market and that was to basically ensure that people had enough money. First of all, that was important regardless and I think we did that well over the pandemic as much as possible. And there are definitely things we could have done better, but we actually were much more generous during this downturn than we have been in any previous downturns.
And that was I think a really very smart thing to do. I think the Biden administration has also prioritized really important long-term things. And this includes some of the industrial policy aspect which is leading to really strong growth in manufacturing construction, for example. And I’m optimistic that this is going to actually pay off dividends going forward.
There’s reasons to believe that in part, maybe why the Federal Reserve’s higher interest rates did not have a deleterious impact on the labor market is that some of the other fiscal policies may have helped counter that including in construction, manufacturing sector.
Nick Hanauer:
Yeah. I mean, all this investment, that money is flowing through the economy creating jobs, just hundreds of billions of investment.
Arin Dube:
Exactly.
Nick Hanauer:
Right, yeah.
Arin Dube:
So I think going forward especially, I think that’s going to be also an important source of strength in the economy and the kind of strength that really is going to help those folks, middle-wage workers. My colleague Bob Pollan has calculated, for example, these investments under the Biden administration, what kind of jobs are they creating and they’re creating, the big chunk of it is basically for folks without a college degree which speaks very well I think to how the working class in this country will fare from the policies pursued by this administration.
Nick Hanauer:
Yeah. Obviously, you can’t predict the future but if you-
Goldy:
Well, he’s an economist so just by definition, he can’t predict the future is what I’ve learned.
Nick Hanauer:
So, assuming no asteroid impact or something like that, what do you think ’24 will yield for the labor market? Do you see wages continuing to rise?
Arin Dube:
Yeah. So I mean, I’m definitely much more comfortable talking about the past than the future. But here’s the thing. I think there’s strong reasons to believe that we will continue to see this kind of an economy with good, solid, real wage growth. Then again, the main challenge is like, of course, there’s some whatever shock, geopolitical or otherwise.
Nick Hanauer:
Yeah, of course.
Arin Dube:
Who knows?
Nick Hanauer:
Who knows?
Arin Dube:
But leaving those kind of things aside, I think the main risk is again that we end up maybe keeping up the interest rate too high. This is why I’d be less nervous if the Federal Reserve started to bring that down.
But other than that, I think there’s reasons to really believe that we’re going to continue to see a very healthy labor market and a very healthy economy. I think there’s reasons to believe that there’s in fact some productivity gains that are being unleashed in part by reallocating towards higher productivity places, giving companies more incentive to invest, and along with some of the technological changes that are occurring that may actually really help push wages up.
And so, I’m actually generally more optimistic about the American economy and what it means in terms of the American worker than I have been in some time. Maybe in my old age, I’ve become overly optimistic but I do think that there’s a lot going for the American economy.
Nick Hanauer:
Yeah. I mean, Arin, I agree with you. I think that if, assuming that we don’t end up in some anti-democratic Trumpy hellscape in the future, if you assume that Biden gets reelected and if we merely successfully implemented the interventions that have been passed over the three and a half years, I predict that you’re going to see GDP growth rates go up back up towards where they were in the ’60s.
I don’t think you can make these kinds of investments in the economy, the infrastructure or the IRA chips, etcetera without seeing those kinds of effects. And if we can-
Arin Dube:
Yeah. I think there’s reason to be very optimistic that the combination of the investments that this administration has already done and the sort of underlying strength in the economy that it helped unleash by pursuing a tight labor market, I think that combination can really deliver broad-based shared prosperity of the sort that we haven’t seen since really the ’60s.
Nick Hanauer:
Yes. Yeah. We’re an inch away from some really amazing cuts. We’re also an inch away from total collapse, too, which makes it-
Arin Dube:
Right. That’s what makes it-
Nick Hanauer:
Interesting.
Arin Dube:
… interesting times.
Goldy:
Oh yeah. May you live in interesting times. I’m curious. We’ve been talking about in the aggregate nationally, have parts of the country done better than others? You mentioned the 30 states that had raised their minimum wage. You had seen wages rising prior to the pandemic at the low end.
Here, just south of Seattle in Renton, they just passed a $20.24 an hour minimum wage that will go into effect in July. Seattle’s just reset to $19 and 90 some cents.
Arin Dube:
Yeah.
Goldy:
Because it’s index. Are other parts of the country, perhaps the lower wage parts of the country not doing as well or is everybody doing well?
Arin Dube:
What we find is that certainly places raising the minimum wage over this period has seen stronger wage growth at the bottom. What is important though is that that gap between the 30 states raising the minimum and the 20 that aren’t has become less.
So, that means that if you’re in Texas, if you’re a low-wage worker in Texas, your wages are still lower than they’re in California or Massachusetts. But they’re growing similarly. And that is a good thing. And that’s why it’s important to keep the tight labor market going, but it also points out that they could do even better where they’d actually enact minimum wage policy.
Goldy:
And is productivity growing everywhere at a similar rate?
Arin Dube:
Yeah. So what’s interesting is that in general, we are seeing very broad-based growth. And if you look at, for example, how many local labor markets are under 4% of employment rate, it’s also at a historical level. So, it’s not just that on average, we have a very tight labor market, but it’s actually also raising the floor in the country where lots of places, including previously Rust Belt areas and other places, we didn’t have very strong job growth.
I mean, we’re seeing pretty strong growth in lots of places which is a good thing because it actually also reduces the gap between areas and regions, like the places left behind versus places that are really growing. Well, those gaps are actually not growing certainly and in some cases falling.
Nick Hanauer:
And what about the racial gap?
Arin Dube:
That’s a great question. So, just for context, if you look at the black-white wage differential, it fell a lot in the ’60s and the ’70s. But then by 1980 or so, it stopped falling and it kind of stayed at an uncomfortably higher level. And in fact, it actually grew some after 2000. So the gap between black and white workers actually grew in 20 years prior to the pandemic.
Here’s the thing. Since 2019, we have seen a very sharp drop in the black-white wage differential for the first time since the ’70s, early ’70s. And that really is it actually erased any of the increases in the differential that happened since 2000. In fact, much more so. So, we were seeing really for the first time a reduction in economic gap in black and white families because it’s not just wages, it’s also unemployment rate. The gap and unemployment rate between black and white workers is at a historical low.
So altogether, this is reducing the racial disparities that have plagued America for so long.
Nick Hanauer:
Wow. It’s like tight labor markets solve everything a lot, a lot.
Arin Dube:
It’s not solving everything but it certainly is a very, very good thing for a lot of folks. And I think we’re just rediscovering this for the first time in decades.
Nick Hanauer:
So, when was the last time you updated the data?
Arin Dube:
Yeah, January of ’24.
Nick Hanauer:
January of ’24. Will you take another look in another 90 days or six months or will you update your analysis?
Arin Dube:
Yeah, yeah. I mean, I started at Substack. And one of the reasons I did it is because I’m going to update the paper but the paper has a different kind of timeframe and publication process is that we have our own things. But meanwhile, I think it’s important for me to put more updated information about the labor market trends out there.
So I thought that my Substack is actually a good place for people who are interested in this kind of to take a look, as well as if you’re following me on Twitter, I post a lot of these.
Nick Hanauer:
Yeah. So, could we have you back in the summer to talk about where we’re at, where that 2.8% number is relative to today?
Arin Dube:
Sure. And I’d be happy to give you an update, summertime update.
Nick Hanauer:
Yeah. Well, pre-election update.
Arin Dube:
Yeah.
Goldy:
But really, it’d be great to talk to you before the election because it could be our last.
Nick Hanauer:
Yeah. So, a couple of final questions and thank you for this has been an absolutely fascinating conversation. So the first is if you were running economic policy for the Biden administration and you got reelected, what would you do?
Arin Dube:
I think, look, we want to certainly pursue a lot of similar things we have done but with hopefully in the context not of a recovering from a pandemic and global inflation shocks. So I think having that space is going to be important. I think there’s ongoing things around the green transition that’s going to be really critical and it’s great to see the administration in spite of a lot of political constraints be able to push some of this.
So I think that really building on greater resiliency is going to be another important thing. There’s some proposals out there thinking about resiliency around energy more broadly than just the strategic petroleum reserve but thinking like, “What about other types of commodity shocks, etcetera? Especially as we’re doing towards the energy transition process, how can we have smart industrial policy?” So I think that is going to be an important arena for the next Biden administration.
Nick Hanauer:
And one final question, why do you do this work?
Arin Dube:
I always wanted to understand what people make and what people get paid. My first job was in Seattle working minimum wage, McDonald’s position and I worked with folks that-
Nick Hanauer:
I didn’t know that.
Arin Dube:
Yeah. It was in the university district at the time. There was a McDonald’s and I worked there working minimum wages and I worked alongside folks. Some of folks like myself were going to go on to college and others were not. And always just stayed with me to try to understand, well, what happens and what are we doing in this society to help folks who are in these very different kind of life positions, life circumstances?
So, this is why I went into economics, to try to understand exactly these questions. And for most of the time, studying economics was really to try to understand why things are really bad. So, what I’m really excited about is to try to talk about why things are good because more fun to talk.
Nick Hanauer:
That’s fantastic. Well, thank you so much for being with us. It’s been absolutely terrific. And we are going to hunt you down in three to six months for an update.
Arin Dube:
Sounds good.
Goldy:
And when we say hunt you down, we don’t mean it in the way we usually mean it to people who have a PhD in economics from the University of Chicago.
Arin Dube:
No pitchforks. Okay.
Nick Hanauer:
Goldy, what did we learn?
Goldy:
Competition is good, Nick. Competition, it turns out that in a market economy, you want a tight labor market because that makes all those competitive wheels start turning. Employers have to compete for workers.
Nick Hanauer:
That’s right.
Goldy:
And so, it drives up wages, it drives up productivity because it’s more expensive to hire people now, so now you want to use them more efficiently. And it didn’t just drive up wages, it drove up real wages. Real wages, we hear all this about how, “Oh, Bidenomics has been a disaster because we had that year of inflation,” which we all know that happened globally. It’s still happening in other parts of the world that the inflation is at a much higher rate than it is here.
But as the supply chain kinks that we had from restarting the economy, have worked out of the system, inflation has come down but wages have continued to rise.
Nick Hanauer:
Yeah.
Goldy:
And so yes, there was a year there where prices were rising faster than wages for most people. But when you look at it in the longer term, from 2019 till today, from the post-pandemic, from the start of the Biden administration until today, real wages have been rising. And I know for some people, it doesn’t feel like that yet because they’re still in shock at how much higher costs are but their wages have been rising too.
For most obviously, this is aggregate data. Some people, it has. Some people, it hasn’t. Real wages have been rising. And for the first time at a rate that we haven’t seen in decades, in decades, in half a century.
Nick Hanauer:
Since the neoliberal revolution got its start.
Goldy:
Right. And a lot of this is due to specific policy choices by the Biden administration. And look, his piece and we’ll provide a link to it in the show notes, his piece on Project Syndicate’s summarizing that study, the headline is Credit Bidenomics for Rising US Wages. And to be clear, US wages, we’re not seeing this in the other G7countries.
Nick Hanauer:
That’s right.
Goldy:
We’re seeing it in the United States. We have made different policy choices than the rest of the industrialized world. It’s happening here for a reason.
Nick Hanauer:
Yeah. Because, Arin didn’t say it, but because it turns out that the only way you actually grow the economy is from the bottom up in the middle out.
Goldy:
Okay, Mr. Biden.
Nick Hanauer:
Yeah. It just is a fact. And all these policy interventions that are aligned with that way of thinking about economic cause-and-effect are creating the impact that we predicted they would. And I think the reason I was so interested in timing, Goldy, is that public sentiment doesn’t change in an instant, right?
Goldy:
Right.
Nick Hanauer:
There’s going to be a lag between when things are better and people begin to feel things are better. And I think this last year, year and a half, has been remarkably successful. And in the next six months, I suspect that people will really start to feel it. That if trends continue, that 2.8% number may turn into 4.
At that point, you can really begin to feel the difference between where you were and where you are today. And that we want people to feel the success of the policy agenda because reading about it in the paper isn’t enough.
Goldy:
Right. And it shows you how important politics are. Politics matter, elections matter. Because, look, Trump is very clear he’s going to reverse this all when he comes in, right? Because you know how vindictive he is. I mean, that was the whole all Republicans wanted to do before was let’s get rid of everything that Obama did. And you can be sure that that vindictive Trump will come in and just reverse everything that Biden did just because it was something that Biden did.
And the thing about Bidenomics and this is something we haven’t seen in a long, long time from an administration, it’s very forward-thinking. Most of the benefits from Bidenomics, those big investments that they’re making, the American people aren’t going to see that for years. This is something where the benefits build over time because they’re just starting to build all those factories, all those manufacturing plants, all those new green energy jobs and so forth. They’re just starting to build the facilities for that now.
They haven’t even started hiring yet to actually fill those jobs. So, this is something that’s happening 2, 4, 5, 10 years down the road. So if we stay on this path, things should get even better. So again, assuming that Biden wins reelection and his administration is able to continue the policy path they’ve set on.
Nick Hanauer:
Yup. It’ll be really interesting to get an update in another four, six months.
Goldy:
And again, if you want to read more from Arin Dube, we will provide links in the show notes.
Speaker 6:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer. Follow our writing on Medium at Civic Skunk Works, and peek behind the podcast scenes on Instagram at @pitchforkeconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.