Let’s do the numbers on a $15 minimum wage

Make Me Smart January 4, 2022 transcript

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 Kai Ryssdal: Hey everyone, it’s Kai. We’ll be back next week with all new episodes of Make Me Smart. Until then, we’ve been sharing some of our best episodes from the last 12 months. I’ve got one more for ya, so here ya go.

Molly Wood: That’s all I would like to think about today if possible. Just pizza. Is anything else going on? No.

Kai Ryssdal: Hey everybody, I’m Kai Ryssdal. Welcome back to Make Me Smart. None of us on this podcast is as smart as all of us, as we like to say.

Molly Wood: So true. Every single day. I’m Molly Wood. It is Tuesday. That means we are settled in in a comfy chair with a cup of coffee for a weekly deep dive into a single topic.

Kai Ryssdal: I don’t have coffee. I didn’t bring coffee. I totally should have got some coffee. That’s my bad.

Molly Wood: You probably had your coffee like, seven hours ago. It’s already bedtime for him.

Kai Ryssdal: Kinda. Yeah. Anyway. So today being Tuesday deep dive, we’re talking minimum wage today because it is very much in the news. And we’ll do a little setup here. And then we’ll get to the person who actually knows what’s going on. And the setup starts like this. The minimum wage federally in this economy right now is $7.25 an hour, has not budged in more than a decade.

Molly Wood: More than a decade, and full disclosure, I honestly had not 100% realized that until I kept hearing it on these Amazon ads for a podcast because they were bragging about their $15 minimum wage. And I was like, this thing hasn’t going up since 2009? Now there is a proposal, of course, to raise it to $15 an hour by 2025. I’m sure you’re hearing a lot about this. Democrats are actually trying to include that in the COVID-19 relief package, it has run into a couple of snags.

Kai Ryssdal: And here’s one that I’m going to say caught everybody by surprise yesterday, because the Congressional Budget Office came out on Monday, today being Tuesday, with an analysis that was really pretty interesting about the federal minimum wage, and among the many other things they said was that raising it to $15 an hour could result, could result in 1.4 million jobs lost in this economy. But it would also lift 900,000 people in this economy out of poverty and raise wages for 17 million more. So there’s a whole lot of back and forth on both sides. How do we feel about this that that deserves to be taken apart here.

Molly Wood: Yeah. And it is, in fact very timely that that came out to just yesterday as we were poised to have this conversation with Arindrajit Dube, a professor of labor economics at the University of Massachusetts Amherst. Thanks so much for coming on.

Arindrajit Dube: Hey, thanks for having me.

Molly Wood: I mean, I feel like we should start with that report, right? What, what was your response to those numbers, especially the job loss numbers?

Arindrajit Dube: Right, so it’s sometimes hard to make sense of big top line numbers. 1.4 million certainly sounds like, you know, a large number. But then you look at the number of people who are actually going to get a raise. And it sort of turns out that according to the CBO’s projection, the overall impact of the policies to raise wages quite a bit more than reduced jobs. And as a result, leading to about close to a million people going above poverty level. Now, that’s, I think, the big picture now, then we can kind of take a deep dive into well, does it make sense? Do their projections make sense? And, you know, my overall takeaway is that I think their estimates are a bit too pessimistic, including compared to the similar analysis they did a few years back. They were a little less pessimistic. And I don’t think the research should make us more pessimistic today than we were a few years ago, because I think the high quality research on this topic actually tends to suggest pretty small employment effects to date.

Kai Ryssdal: Can I, it’s kind of a foundational question here. And the, the answer is going to seem silly, right? Because it’s obviously politics, you idiot. But why is this so hard to get consensus on?

Arindrajit Dube: That’s a great question. And, you know, I am not entirely sure why, because it’s actually really popular to raise the minimum wage in the United States. It’s popular across the partisan divide, which is pretty hard to do for, you know, when it comes to policies these days. But at the same time, it just becomes very embroiled in, embroiled in, in politics at the national level or even in state legislatures. But then you put it actually as a ballot initiative, it pretty much always passes, including in sort of red states, blue states, purple states.

Molly Wood: With whom is it not popular?

Arindrajit Dube: So it’s not popular among, for example, restaurant owners. That’s, and sort of some low wage businesses. Interestingly, it’s actually used to be more strongly opposed by larger retailers, for example, like Walmart or restaurant chains like McDonald’s, but interestingly, now major retailers are actually for a major increase in the national minimum wage. And McDonald’s is neutral. So that’s been different than before.

Kai Ryssdal: Why do we need a federal minimum wage? Because for all that we like to talk about the American labor market, it’s not like there is one actual labor market in this country, right? It’s different in Mississippi, it’s different in North Dakota, and it’s different in Manhattan. And it’s one thing for somebody in an upscale shop or an upscale company in Manhattan, where living expenses are high, to have to pay their workers 15 bucks an hour. And it’s another thing for somebody running an insurance company in Biloxi, Mississippi.

Arindrajit Dube: Yeah, so as a practical matter, the federal minimum wage serves mainly as a floor across the nation. So we have like, about 30 states that have a higher minimum than the $7.25 federal standard. But these 20 or so states, it’s very hard to actually raise minimum wages in the state legislatures, these are states, for example, Alabama or Mississippi, Texas, it’s not because residents of those states don’t want to increase the minimum wage, but it does not happen at the state legislature level unless it’s put in the form of a ballot initiative. But that’s costly. And so as a practical matter, we’ve gone for almost a dozen years, right, without raising the minimum wage in these states. So the way I would think about it is the federal minimum wage will be sort of a baseline standard. And above that, you will likely have higher wage blue states that will, again, increase the minimum somewhat above that. That’s, I think, a sensible way of doing things. It’s not the only way of doing things, it’s possible to have tiered minimum wages, but in general, it’s in the United States, mostly folks have wanted to use a single federal standard and then allow states to go above them.

Molly Wood: Is, you know, the, the long-standing argument, of course, against this is that it leads to job losses, and the CBO report does seem to treat that as a given. And I wonder what your thoughts are? Is it a given, like has research consistently shown that, you know, instituting a minimum wage, raising the minimum wage inevitably leads to job losses, the end?

Arindrajit Dube: So I don’t think that’s true. So 2019, I was asked by the UK treasury to look exactly at this question. And I produced a report for the UK Treasury that summarized the international evidence from the US, UK, Germany and other high income countries. And, and, you know, what I found is that overall, the most up to date research points to fairly muted effect of minimum wages, unemployment, while really sharply increasing the earnings of low paid workers. And this includes some of the more recent ambitious policies, both in the US as well as, for example, in the UK, which has actually raised the minimum wage quite a bit. So you know, and I use a similar methodology as the CBO. But just used more studies, and also looked at the quality of the study. So if you look at sort of the most comprehensive estimates, looking at the overall impact of low wage jobs in the US, for example, published in top leading economics journals, those tend to actually suggest relatively mild impacts of the policy. So for that reason, I think that other economists will agree that I think the CBO estimates are more pessimistic than what the current research frontier actually suggests. It’s not to say there’s no disagreement about that. Right. Economists definitely disagree on this topic. However, I think the weight of the evidence is pretty clearly moved towards finding relatively small effects. That’s not to say there won’t be any effect. Right. And it is also important to acknowledge that $15 would go above where we have been, so there are some unknowns. So I think that’s something we should keep in mind as well.

Kai Ryssdal: So I should have done the math before I asked this question, but $15 an hour doesn’t actually get you very far, right? It doesn’t get you, I think, above median wage in this country, right? So why not like, $20 an hour, why not like 25 and really make it worthwhile?

Arindrajit Dube: Right, so 20, $15 by 2025 is probably going to get to about two thirds of the median wage in the country. Just for example, the Conservative Party in the UK has proposed going up to about two thirds of the median wage. And that’s, they’re on their way towards that target. And so far, interestingly, in UK, this is not a controversial topic, both major parties on the left and right agree to have a substantial minimum wage. It, there’s a general consensus amongst me, primary stakeholders in the society. It’s a very, very different scenario. But I use the two thirds as an example because that’s about where we would be. Now, why not higher? I mean, to be honest, I think we haven’t really hit the place where we see very serious job losses. That’s my reading of the evidence. But at some point that would happen. So I think the question is, what is the responsible way of pushing the wage further than we have before. And that’s important because in this country, we have had such low federal minimum wages that in some ways, the fact that we would go outside of past experience is almost a given because past experience has been to really keep the minimum wage pretty low.

Molly Wood: And then what about the economic halo effect? Right, again, going back to those CBO numbers with the idea of job loss, you know, we have been conditioned to believe that spreading wealth around rises, raises all boats, right, that there will be a trickle down effect to workers who make more money, spending that money, stimulating the economy, creating opportunities for more jobs, is there empirical evidence for that?

Arindrajit Dube: So I think there’s definitely empirical evidence that people spend more, especially at the bottom, including, you know, borrowing money to buy cars, or paying down other types of debt, and also spending more, that can have some positive impact in terms of stimulating the economy. But let’s be clear, that’s going to be a pretty small part of the story. Because low wage earnings are just not a very large part of the overall GDP, almost by definition, they’re the lowest wage workers. So it doesn’t add a lot to the overall stimulus. Now, that may not be true everywhere, some local communities, you could see greater spending leading, spurring that type of stimulus. But overall, my sense is what a higher minimum wage would do is, would be partly captured by higher prices paid for by middle and higher income families to help raise earnings at the bottom. That’s probably the most likely way the policy would actually get implemented.

Kai Ryssdal: Do you think this is a moment for the minimum wage, coming out of this pandemic with, with all the economic damage it has brought, do you suppose there’s, there’s opportunity here?

Arindrajit Dube: So the pandemic is certainly highlighted how difficult life has been for low wage workers, you know, we have this K-shaped recovery where the bottom end of the labor market is experiencing very different dynamics than those at the middle and top, and also highlight, highlighted, for example, the risks that service workers are taking in supermarkets and other places to their own health. So I think that is something that highlights the importance of actually having a wage that is sufficient for those at the bottom. I think it’s hard to know exactly how the minimum wage would play out during this period. But I think no one has suggesting that we raised the minimum wage to $15 this year, or even next year. So I sort of take the longer view here that think about where we want to be four or five years from now, that should really guide our policymaking today, as opposed to just this minute.

Molly Wood: You know, it’s hard to escape. I mean, I’m listening to you describe this kind of, like, unproven negative effect controversy that it doesn’t trickle down to people. I mean, it’s hard to avoid the chilling conclusion that we haven’t raised the minimum wage in this country because we just don’t care, that it won’t have a minute, if it won’t have a meaningful effect on GDP, for example, or consumption, that we, as a country and a matter of policy, have not been able to be bothered with the working poor.

Arindrajit Dube: And I think it’s certainly true that if you look at national politics, it doesn’t seem to look like it cares about the working poor thing, that has certainly been true. And that’s true with a broad array of policies. I’m hopeful that that’s changing. And I’m hopeful that we are seeing better policies coming out that actually can help those at the bottom. And I take the minimum wage as one part of that.

Kai Ryssdal: Super quick just on the way out here, what are the other parts, right? Because you can’t, you can’t just raise minimum wage in isolation.

Arindrajit Dube: Absolutely. I think reforming our unemployment insurance system can go a long way to help those at the bottom. Reforming the earned income tax credit to make it more generous can also play a really important role. The proposed child tax credit is great as well. So I think, you know, I see the minimum wage is one of the arrows in our quiver we have along with generous support for those who don’t have a job, as well as those who are at the bottom of the distribution and to reduce child poverty, all of these things we can do. And I think that minimum wage plays one role in that broad array of policies.

Kai Ryssdal: Yeah, because fundamentally right, I mean, you mentioned child poverty and the rest of it. This is a discussion about inequality in this economy and how much longer we’re going to tolerate it.

Arindrajit Dube: Absolutely. And it’s about equitable growth. Are we gonna grow together or apart?

Kai Ryssdal: Arindrajit Dube is professor of labor economics at UMass Amherst. Thanks for your time. I really appreciate it.

Arindrajit Dube: Thanks for having me.

Kai Ryssdal: Not the last of this debate to be sure.

Molly Wood: Not at all. Yeah, I don’t even think that when we started planning this show, we knew exactly how timely it was going to turn out to be.

Kai Ryssdal: Props to us.

Molly Wood: But it’s kind of great how it works out like that. Yeah, it’s just, it’s, it is absolutely fascinating and one of those things where when you really start to think about it, you’re like, what, what? Yeah, yes. Alright. Good talk.

Kai Ryssdal: Good job. Good job. We’re gonna take a break. Comments on today’s show come to us best in a voice memo, makemesmart@marketplace.org. Coming right back.

Molly Wood: And we’re back with our little, our little news fix, a little update on what’s happening. What you got?

Kai Ryssdal: Mine’s a, mine’s a quickie out of the news today, there’s been this world health organization team over in Wuhan, China looking for the root cause of this thing that has affected the entire planet for a year. And they came out today with their preliminary report that said, yeah, we don’t know. We don’t know. Probably was not a lab leak, but otherwise, couldn’t really tell you where it came from. So, you know, yeah. Unable to conclude whether the virus had passed directly from animal to human or through an intermediary host very unlikely to have spread as a result of a lab accident, which is actually nice and promising and also takes care of a bunch of conspiracy theories that are out there.

Molly Wood: I mean one hopes, yes, yeah.

Kai Ryssdal: Well as, as hard as conspiracy theories are to kill, but I just did. You know, it’s important that we keep track of how we got to where we are. And this is one little step of that.

Molly Wood: Yeah, absolutely. I have gone in a wildly different direction today to a totally nerdy topic that I’m fascinated by, which is that we just don’t make a lot of semiconductors in America anymore. And it is a problem. There was a super interesting story about Intel and how we should all be worried about the fact that Intel, which of course, makes computer chips for all kinds of things, including, and this is what’s so fascinating, cars, like there is a massive production shortage for semiconductors to put in cars, and is actually impacting the ability of major automakers to make enough cars to meet demand, which is just absolutely fascinating.

Kai Ryssdal: GM is closing factories.

Molly Wood: Yeah, right. And it’s literally because of chips like, because we just don’t–and so and we don’t really manufacture chips here, we have like Qualcomm and, which makes mainly wireless chips, and then Intel which makes semiconductors, and that’s kind of it, and so we have this like, extreme reliance. I mean it’s just like this really interesting story about onshoring and technology development and then a thing that China has put like a ton of very specific energy into, which is figuring out how to make its own chips. And then Apple meanwhile, is like manufacturing its own chips but like only for iPhones which, lovely, but like maybe open that up and make some for cars. I don’t know. I just am kind of–

Kai Ryssdal: Well, Apple is gonna make chips for its own cars. Thank you very much. I mean, that’s where that one’s going.

Molly Wood: Yeah, I’ll drink like, a six pack of hazy IPA when Apple makes a car. Not happening.

Kai Ryssdal: Molly put her money where her mouth is on that one.

Molly Wood: It’s gonna be a good show, but I don’t think it’s going to. Anyway, I’m like weirdly obsessed with the auto chip shortage and all of its like, strange globalization and unintended consequences aspects.

Kai Ryssdal: Do you remember the days you could pop the hood and you could like fix your car? You know?

Molly Wood: Man, I had a ’68 Mustang in high school. And you could stand inside that thing. It was basically just like, you know, straight six, engine block, that’s it and then all this space and just some connectors. Yeah, some hoses and yeah, it was good. Those were the good old days, children.

Kai Ryssdal: Oh, god.

Molly Wood: You can fix your own car.

Kai Ryssdal: That’s a whole different show. All different show. Alright, mailbag. Come on before we actually tell you. Let’s do it.

Molly Wood: That car, that car was vintage when I had it to be clear. It was not like, I’m not a vampire. Oh, man. Okay, sorry. Alright.

Kai Ryssdal: Mailbag. We heard from Haley down in Florida last year. She’s a graduate student. She sent us a voice memo about university teaching during this Coronavirus economy. And here is an update.

Haley: Hi, Kai and Molly, you want an update on university teaching? Here it is. In person classes are infinitely better than zoom. But it’s also terrifying. Even with reduced class sizes, in many situations social distancing isn’t really possible. I and lots of my coworkers have had students test positive before even the first day of class. It’s hard to feel like the university admin care about COVID when my health and safety depends on around 60 other people that I don’t know. It also seriously impacts my own risk assessment because this is just from teaching, not from anybody else that I know. I’m grateful I get to talk to people. But frankly, the vaccine can’t come soon enough.

Molly Wood: Yeah, yeah.

Kai Ryssdal: Yeah. Let’s get those teachers and university professors at vaccine showing so that we can get everybody back in the classroom.

Molly Wood: I know, because even though I really, like I really understand the dilemma of our new CDC director who’s saying, you know, there are enough precautions we can take that teachers don’t necessarily have to be vaccinated. I also understand why that was such a like, hubbub and freak out because teachers are rightfully terrified. Yeah, because we have so many systems that aren’t taking care of them. And yeah, it’s like, you know, what, just better safe than sorry.

Kai Ryssdal: It’s like, it’s like all the studies showing that the economic contraction early in this pandemic was not caused by government shutdown, it was caused by consumers saying I am not doing that. And that’s part of what’s going on here. Right? The teachers are like, you got to be kidding me. And you get that, you totally get it.

Molly Wood: You really, really, really do. Because it’s not like we have demonstrated a lot of care for teachers in this society for the last 40 to 50 years. So yeah, fair, fair point, teachers. Last week, we heard from a listener who was pleased with how Corpus Christi is distributing vaccines. Here’s another listener in another location with a slightly different experience.

Sarah: Hi, Kai and Molly. I’m Sarah from Ohio. I have a father in his mid 70s who is a widower. And I will not go into the amount of frustration that I dealt with trying to get him an appointment for the vaccine. He did get it this week, but it was just so frustrating. Now, my father and I were very lucky because we have excellent health insurance. We have excellent Wi-Fi connectivity. I’m the kind of person who I had enough technical expertise, was able to keep checking, checking, checking to make this appointment for him to get a shot. I think of all the people who do not have what we have, and it just makes me so angry. This is what happens when we do not have a concerted federal response to such a catastrophic event. By the end of the month, we’re going to have at least 500,000 of our fellow Americans who will have died, plus countless others who have been adversely affected by this pandemic, it just makes me want to scream.

Molly Wood: You are not alone. You are not alone. I know that we are all you know, it’s this, it’s this, it’s gonna take a lot of years to untangle everything that happened in the last four years and particularly the last year. But when you hear statements out of the Biden administration, such as the response to the pandemic, from the federal perspective, is even more dire than we thought. Like, I can’t imagine how we cannot have some version of a 9/11 commission to figure out exactly what this, what this government did to us.

Kai Ryssdal: Yeah, I was just thinking about that. And, and while I agree with the sentiment, I don’t think it’s realistic. And here’s why. 9/11 was a specific discrete incident. January 6th at the capital was a specific discrete incident. Yes, with, both with some antecedents. This has been a rolling story ever changing with, with Hydra-like tentacles that go everywhere for a year. And I don’t know that we’re gonna be able to put it into a single commission. I think this one truly will depend on the historians and the PhD theses over the next 25 years to unpack what happened. I don’t know that we’re going to have a satisfactory answer anytime soon that’s, that’s comprehensive. Right?

Molly Wood: I mean, yeah. Yeah. I mean, we do have laws that, that govern the retention of federal records. So evidence gathering could be, and I mean–

Kai Ryssdal: We also have laws against insurrection in the Capitol, but you know.

Molly Wood: I just, it’s, it’s like it’s real. We all want to scream. And I don’t want it to be like one of those things where I mean, I just feel like this period in American history has, there’s a danger of it becoming basically our 2008, 2009, right, where this huge thing happened, where there was definitely malfeasance or at a minimum a moral apathy toward the, you know, the future of the rest of the world. It broke the global economy and there were essentially no consequences for it. And I think that we are living the reaction to that right now. Like it sews the seeds of that kind of populism. And so in terms of restoring trust in institutions, as we, you know, try to reflect on a year in which the government literally, apparently on purpose, did not take care of us as a populace, I think that the seeds that that plants are really dangerous for our country. Yeah, at a time when a lot of dangerous seeds are already blooming.

Kai Ryssdal: Right. Right. But look, we have–no, no, I get it. We had a Financial Crisis Inquiry Commission. And yet still, we got the Tea Party out of that. We got Occupy Wall Street, we got the 2016 election, right. I mean, we, we did the introspection. I mean, the Financial Crisis Inquiry Commission report was a snoozer.

Molly Wood: All we had was like a report. We just had like a, like a, you know, a book report on accountability. Yep. Yeah.

Kai Ryssdal: Amanda in Ohio, Amanda, Amanda, Amanda, freelance marketing consultant, graphic designer, here is what she says.

Amanda: And so I was very fortunate to be able to get some of the extra unemployment when they put the PUA program into effect last year. But then that ended in August. And, you know, I was out that $600 a week and I was left with about $170 a week from the state. Luckily, I was building back my client base for my consulting, so I was at least making enough money to, you know, pay rent and food and all that kind of stuff. January of this year was the first month that I actually felt like I built enough to really have almost, almost a living wage, and, you know, have a little squirreled away for the next month. And then this morning, I go into my bank account, and there’s $8,000 sitting there of backdated unemployment since August. And the irony is totally not lost on me that the month when I don’t need it as when I finally get the money I’ve needed for the last six months. And if that’s my situation, it just makes me think about all these other people who weren’t fortunate enough to find a way to eke out some sort of existence in the past year.

Kai Ryssdal: Without a doubt.

Molly Wood: Yeah. Yep. I mean, the consequences of this are gonna, you know, it’s like a weird, we keep talking about how strange it is to exist in, in a time of good intent, right, at a time when a in an administration full of professionals, regardless of politics, with the intent to help people is plugging away and that wants to feel good. And yet the consequences of all of this are still around us and it’s still raging every day. And it’s confusing. It is a confusing time. And there are a lot of people who didn’t find that way. Yeah. Alright, now because we are spiraling toward the dark place, we’re going to pull on out leave you with the answer to the make me smart question, which is what is something you thought you knew that you later found out you were wrong about? It’s a fun one.

Kai Ryssdal: It is. It is a super fun one. So we had on Marketplace a couple of weeks ago a song about Janet Yellen by the rapper Dessa, talking about the first female Secretary of the Treasury. And anyway, we asked, we asked to listen to the track. It’s on our It’s on our website marketplace.org. Anyway, we asked Dessa the make me smart question.

Dessa: For a long time in my career, I thought I was a really lousy collaborator. I was because I would sit around a table with a bunch of other lyricists. And they were having so much fun. And I was kind of a drag, I was stressed out by the process. I didn’t write as fast as everybody else. And as I’ve gotten older, I realized that I do have sort of an unattractive sense of territorialism when it comes to words. But I’m a really good collaborator when I’m partnering with people who have really different skill sets. So in the past, you know, 10 and 15 years, I’ve collaborated with, with the Minnesota Orchestra and I’ve collaborated with a dentist to make like a retainer that would light up inside my mouth while I sing. And so for me, I’ve reframed the idea of what it under, what it means to, to work with people. It’s less like gathering like minds and similar talents with a shared vision. And instead, it’s a gathering of people with different interests and really varied skill sets to see what kind of new thing we can build together that it might have occurred to none of us to build alone. Right?

Kai Ryssdal: Yeah, I like that. That’s, that’s cool. That’s cool.

Molly Wood: That’s so great. It was the version of none of us is as smart as all of us.

Kai Ryssdal: That’s exactly right. Super cool.

Molly Wood: Yes. And also listen, Dessa, fellow power strugglers unite. I see you. I see you and your unattractive tendencies.

Kai Ryssdal: We shall close the door on the podcast. That was a great one. Questions for what do you want to know Wednesday which is of course tomorrow, our email is makemesmart@marketplace.org, if you send us a voice memo, well, let’s just say we look favorably upon them.

Molly Wood: We will read your emails if, you know, if there is a reason that you cannot record yourself and you’re not comfortable, like, we got you, we got you. And send us your answers to the make me smart question, send those too. What is something you thought you knew and you later found out you were wrong about? We need more of those. Make Me Smart is produced and directed by Marissa Cabrera. Tony Wagner is our digital producer, it’s a thing, and Erica Phillips writes our newsletter and smart speaker skill. It’s a job.

Kai Ryssdal: Drew Jostad engineering today. Guerlain is gonna mix it later. I suppose our theme music was composed by Ben Tolliday and Daniel Ramirez. The senior producer is Donna Tam and the executive director of on demand is Sitara Nieves.

Molly Wood: If he wants to. If he feels like it. No pressure, buddy. Not true