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Today in the argument, what's the downside to paying people more?

Among the most popular and blunt tools to fight poverty is a minimum wage, but it doesn't actually do that because if you have a full time job that pays the federal minimum wage of seven dollars and 25 cents, you're only making about fifteen thousand dollars a year, not enough to rent a one bedroom apartment in 95 percent of counties in the United States, raising the federal minimum to fifteen dollars an hour, something progressives have been fighting for for years. They came close this month, but an amendment to raise the minimum wage was ultimately removed from Biden's covid relief bill.

Is raising the minimum wage or having one at all the right way to battle poverty? I'm Jane Kirsten. And I think it's past time to raise the minimum wage. It's not a way station for 16 year olds, for millions of Americans, including parents with small children. It's how they make ends meet. More people across the political spectrum are beginning to support a higher minimum wage, but it does have opposition. So I've invited two guests on different sides of the debate.

Saru Jayaraman is the president of One Fair Wage and director of the Food Labor Research Center at the University of California, Berkeley. Jeff Miron is the head of undergraduate and graduate economic studies at Harvard and head of economics at the Cato Institute.

Hi, Sara, thanks so much for joining us. Thanks so much for having me. And hey, Jeff, thanks so much for being here. My pleasure. Thank you, Piers. I want to get out of this conversation. I want to have this conversation in two pieces. First, I want to talk specifically about the 15 dollar minimum wage here, both of your positions, and then get into what the arguments for and against a wage hike are.

And then I want to zoom out and talk about raising the minimum wage as part of an overall suite of policies aimed at lifting people out of poverty. We're going to go over some other options and talk about what's actually being considered and what's actually possible. So, Sara, what's your position on the 15 dollar minimum wage?

So I think it's important to understand the full scope of what's being proposed. The Raise the Wage Act not only would raise the minimum wage to fifteen dollars an hour over several years, but it would also eliminate the sub minimum wage for tipped workers, which is literally a legacy of slavery, the sub minimum wage for workers with disabilities, which is a direct reflection of the valuation of people with disabilities and youth. The current federal minimum wage is seven dollars and 25 cents for all workers and two dollars and 13 cents an hour for tipped workers.

And it is cents literally less than a dollar for workers with disabilities. Our position is, of course, that that is not just low it it actually creates severe poverty, economic instability. It has created just horrific suffering during the pandemic. Within the case of the seminal wage for tipped workers, it's also been a source of horrific sexual harassment because you have a largely female workforce living off of tips as a portion of their base wage. And that 15 dollars is actually the minimum that's necessary to live, particularly given that this workforce of minimum wage workers are adults.

Median age is in the 30s. They have children and they are struggling to survive, often working multiple jobs on these poverty wages. So we strongly support phasing in the raise of the minimum wage over time.

Jeff, where do you stand on this issue?

So I'm opposed to raising the minimum wage to fifteen dollars an hour. I'm, in fact, opposed to government mandating any minimum wage at all.

You wrote in 2014 that the minimum wage is not ten dollars and ten cents or seven dollars and 25 cents. It's zero y for a bunch of reasons. First of all, the minimum wage is trying mainly to tackle an issue of people having low income, but it does not address the people with the lowest income, namely people who don't have jobs in the first place. It's raising the wage of people who are already employed, who may have low or very low income, but they're not the poorest members of society.

And in my view, government anti-poverty efforts should be focused exactly on the people who are the worst off. Minimum wage is very poorly targeted for doing that because it starts off by only affecting people who are employed, who have jobs. Secondly, it's going to in some instances, have a very perverse effect if you're trying to raise the wages. Even if we accept that it's focused on a group of people that have jobs, it's going to cause employers to lay off some people or hire fewer people or work more unpleasant hours or cut other benefits or do various things that are going to make those jobs bad for some of the people that you're trying to help in a case where it causes employers to hire fewer people, some people go from having a lower wage to having a zero wage.

That seems a very crude way of trying to alleviate poverty, even if the minimum wage has only a modest effect in reducing employment is a huge, long controversy in economics about the bulk of the evidence does suggest there is a negative effect on employment, especially if you were to double the minimum wage as is being proposed currently. But it may have other negative effects, such as raising the prices of the goods and services that these employers provide. That also is a regressive step, not a progressive step.

I'm just going to cut you off there because I really want to put this to. Last month, the Congressional Budget Office put out a report into the impact of a 15 dollar minimum wage, and it showed that a gradual increase to a 15 dollar minimum wage could add fifty four dollars billion to the deficit. If you're worried about that kind of thing, I know deficit spending. We don't talk about that anymore. It's not a thing. I don't even know who she is.

But it could also eliminate one point four million jobs because, as Jeff said, that could be added prices for food, that could be added prices and a lot of spaces that low income people and all income people might need. What's your response to that?

You know, the press reported on that Congressional Budget Office report in a way that I think caused most people not to actually read the report, the actual CBO report. What it said is that we don't know what the impact on jobs could be. The impact on jobs could actually be anywhere from zero to close to three million jobs. We have no idea. And that. One point four million number was an intermediate between zero and close to three. In fact, we looked at the seven states that require what we call one fair wage, a full minimum wage with tips on top, including California, which has passed a 15 dollar minimum wage and full elimination of the seven wage for tipped workers.

Those seven states and by the way, they're not all blue states. If you look at those states that have raised the minimum wage, those seven states in particular for the restaurant industry we looked at from 2011 to 2016, we saw that those states actually had higher job growth rates in the restaurant industry. They all actually have the same or higher growth rates in the restaurant industry in terms of jobs as the rest of the country. And so it just hasn't borne out in the seven states that got rid of the Semenov wage for tipped workers.

It just hasn't borne out in the evidence. In fact, the states with the highest wages have had the highest job growth rates in the restaurant industry. So what do they do when they get a minimum wage increase? They spend it, the economy is boosted and more jobs are created.

I also want to speak to the menu price issue because we've also studied this a lot, actually. We've compared restaurants, the same restaurants, chains in California compared to all other states. And the menu prices are exactly the same. These are publicly traded companies. They wouldn't undercut themselves. They wouldn't grow in a state like California if they weren't profitable.

Jeff, what do you think? Because I think that issue of if you pay people more money, they have more money, they spend more money. That makes sense to me.

My best answer is that money came from someplace. But let me also take a step further back, which is if you tell employers they have to pay a higher wage for some of their employees, one of the things that could happen, they could say, OK, that's fine, I'll just make less profit. Or they could say I'm going to reduce that kind of employment and substitute with higher skilled people. I could substitute machinery for some of the less skilled labor that I was paying this lower minimum wage, and they could raise their prices.

It's unlikely that they're just going to do nothing and absorb that profit loss. They're going to respond in some way, shape or form. And all those things make those markets less efficient. And that means that you're distorting the decisions about whether to use in producing a particular good or service low skilled labor or to substitute with a machine. Somebody is paying for it. It's either reduced profits, but then the business owners are going to respond in ways which try to recoup that, many of which are going to make those workers worse off or at least undo some of the benefit they got from the higher wages, such as by adjusting their hours in ways that workers don't like, cutting benefits and all those sorts of things.

So we can't just give people more money without saying where we're taking it from and then what the cost of that is and what the effects of that are going to be. I'm thinking about not necessarily minimum wage jobs, but we've all heard of or even had jobs where in exchange for getting paid more, there is an expectation that, yes, you make more money, but you're supposed to work far more hours. The expectations change. And if that's true for jobs I've had this sounds like it would also be true for minimum wage positions.

One, as Jeff said, companies just find another way to exploit workers. If they're paying them more, they could hire fewer people or force them to do different and worse labor.

Now, I would totally agree with Jeff that, yes, this does come from somewhere. This is why I fundamentally cannot agree with the idea that there can't be a minimum wage because employers, corporations, businesses need to pay their fair share of the cost and the value of the labor that they're profiting from. That is a concept that we as a country decided on when we ended slavery in the United States of America. We decided as a country morally that we believe employers should pay for the value of the labor that they are profiting from.

Now, in the restaurant industry in particular at Emancipation, the restaurant lobby did not want to pay for the value of their labor, and so they mutated, tipping from being an extra or bonus on top of the wage to becoming a replacement for wages, which, by the way, before emancipation, waiters were paid a full wage.

So the whole idea of employers paying for their labor is something that we as a nation have accepted. Now, what happens when the minimum wage goes up in the restaurant industry in California or in the states that have raised wages? They don't necessarily just reduce jobs. That hasn't been borne out in the data. They do actually figure out to your point, Jeff, greater efficiencies. They figure out that when you pay people more, actually, they don't leave you, they stay.

We did a study with Cornell where we interviewed one thousand one hundred restaurant managers. And they told us that when you raise wages, you cut the cost of employee turnover because guess what, when you pay people more, they don't have to keep moving and looking for different jobs, they stay with you. That's less turnover, which costs in terms of the cost of recruitment and hiring and morale and training new people. So it actually pays off to pay people well.

And that is part of the overall cost of doing business. OK, I have to object really strongly to the notion that imposing this minimum wage is going to make businesses more efficient by reducing turnover or encouraging them to substitute capital in an efficient way. If those things were efficient, if they were profitable, the employers would have done them already. If you can reduce turnover by paying a little bit higher wage, then of course employers will do that. And many employers do do that precisely for the reasons you explain, but not when they're forced to do it by the higher minimum wage.

Take the example of substituting machinery for a lower skilled employee. There's a cost to the machinery. There's a cost of the of the employees of the wages. You make the calculation of which one is more profitable and you do the one that makes sense. If it made sense to substitute capital, you would have done it already. So I don't think that argument is the least bit convincing. And it just doesn't make logical sense that there's all this profit opportunity that these big public corporations whose sole objective in life is basically to make profits, that they're leaving all this money on the table by not paying a wage, which would get them to a more profitable outcome.

But isn't there an argument that part of making more money is a public appearance of being a good corporate citizen? We've had a lot of conversations recently about big corporations attempting to position themselves on specific political issues. I'm thinking of Apple getting involved with the Religious Freedom Restoration Act about five or six years ago isn't an element where, yes, there is kind of the brute capitalism we need to make as much money as possible. But also it can be a good business maneuver to advertise yourself as having a good corporate culture by having higher wages.

But then again, you don't need the government to make businesses do it. If it's good for business to do something which looks socially responsible, whether it has to do with global warming or the wages you pay or the benefits you pay, then businesses will do it on their own because the way you describe it, it's in the interests of the business. The net effect on profits after taking account of the somewhat higher costs for wages, but having better PR, having more people like your company, et cetera, they'll take that into account and they'll do it on their own.

But I do want to put that question to Sarah, because I live in D.C. where we have a 15 dollar minimum wage. Florida, as you mentioned, has passed one that will go into effect by twenty twenty six. New York and Seattle both have a 15 dollar minimum wage. So if you have private businesses that are saying it's a good idea for us to look good on this particular front by having a higher minimum wage, if you have cities and states that are making these decisions, why do we need the federal government to set a higher minimum wage for all?

So the truth is that we're talking about giving people a very basic floor that would allow them to survive, allow them to get off of public assistance, allow them to feed their families when they work full time or more than full time. Look, here's the problem with the argument Jeff is making of let's just leave it entirely to the market. Let's have no minimum wage at all. If it were efficient, companies would do it. Well, guess what?

There are lots of things companies do that are inefficient, that are based on their biases, their desires, their opinions. Racism and racial discrimination is not actually market efficient. So it is not entirely always efficiency that drives employer choices. And to the point of publicly traded companies. And if it were so great to pay people more, why wouldn't they do it? I'll tell you why. It's because publicly traded companies look at quarterly returns and so there are a ton of efficiencies that arise from paying the minimum wage.

The problem is that the publicly traded corporations aren't able to see it because they are so focused on short term gains. So the problem with not having a federal minimum wage is that you leave the states with the highest populations of people of color at the lowest wages, and that exacerbates racial inequity in our country.

I want to focus on one thing that Soru said, which is that I'm arguing for leaving everything to the market. I haven't said this yet, but I want to make clear that the argument against the minimum wage is not an argument against the social safety net. It's an argument that the minimum wage is a terrible way of trying to have a social safety net, a libertarian view. My view is that if you want to make poor people less poor, you should give them money via mechanisms like food stamps, housing assistance, universal basic income, because those provide people with income without distorting private markets and without having the ancillary negative consequences that the minimum wage has.

So they're separate questions. One question is whether to help people who are not in good financial position. The other question is how. My position is that the minimum wage is a terrible way in which to do it because it has all these ancillary side effects and because it doesn't very successfully target the poorest people, whereas a universal basic income does explicitly target the very poorest people.

I do just have to address what Jeff said about leaving it to the market.

You're not saying leave it entirely to the market, but you are saying leave wages to the market, which means an employer employee, meaning an employer could pay zero if they want to because people wouldn't work for zero.

Well, people are working for zero right now. Why don't they set a zero wage? Can I finish my my point, please? Yes. So actually, there are restaurant owners right now requiring workers to live off of tips. It's illegal. Workers often don't complain because they are scared to. They face retaliation. They are very vulnerable. They are women. They are people of color. And during the pandemic, these workers who receive zero dollars an hour could not get a dime of unemployment insurance because they were forced to live off of tips.

And here's the basic problem with having it rely entirely on government programs, social safety nets, some some really big problems with that one. Workers want to be able to work and feed their families with their earnings. These workers as well want the dignity of being able to work in their profession. And these are professions and not have to rely on government assistance, which is heavily stigmatized, difficult to access, and they want that dignity of being able to be paid.

So you, Jeff, are asking taxpayers to cover these people's livelihoods. But what I'm saying is that employers have to pay their fair share. They have to cover the value of their labor of the people who are doing the work that brings them profit.

Hi, Jane, this is Reggie from Brooklyn, and the thing I've been arguing about with my friends and employer is whether we should use nuclear power to reach our climate goals. I think nuclear energy is the cleanest, most reliable way to bridge the gap between where we are now and our hopefully zero carbon future in the time we have left.

What are you arguing about with your family, your friends, your frenemies? Tell me about the big debate you're having in a voice mail by calling three four seven nine one five, four, three, two, four. And we might play an excerpt of it on a future episode.

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So, Jeff, you said something that really interested me earlier as a libertarian is that you talked about the social safety net and the idea that we don't need to raise minimum wage. What we do need are better ways to support the poor that aren't that. So talking about improving welfare programs, but you've mentioned two ideas and other work that you've done, the negative income tax and expansion of the earned income tax credit. Now, I think for many people, they may have heard of the earned income tax credit, but can you explain what the negative income tax would look like?

So a negative income tax, which is in all important ways, the same as a universal basic income, says that everybody is guaranteed a certain amount of income per quarter or per year, some basics like that, and then they face some tax rate on all income earned. The simplest way to describe it, which doesn't feel right to many people, is to say we send a check for five thousand dollars to every single person, including Bill Gates and Warren Buffett.

But we then impose taxes. So if you have no income of your own, you receive that five thousand dollars per year and that's your total net income. If you earn ten thousand dollars and there's a 30 percent tax rate, you would get the five thousand directly from the government plus the ten thousand you've earned, minus the three thousand you would own taxes. You never own taxes on the universal basic income on the negative income tax. So the idea is we put a floor on the amount of income that every single person has and it gradually as you earn income, it didn't come from the government.

You pay taxes on that. But nobody will ever have any income below that floor that the government creates.

So what you're saying here is that employers who make big profits, whether that's a Walmart or McDonald's or even a company that's doing really well in Washington, D.C., like a brewery, like the one that is being allowed near my apartment, they do not have the responsibility to redistribute money. But the government, the federal government through this program could redistribute money. They could send out checks for five thousand dollars to every American. Why do employers not have that responsibility?

But the government does. That seems that I'm confused. It's basically a practical answer that if the government does it in roughly the way I described, it's consistent. It applies to everyone. It happens sort of year after year after year because it's a government policy that's in place and that continues unless Congress changes its mind. But trying to get private employers to do it ends up mainly enriching. Private employers were some sectors relative to others. The housing industry gets richer than it would otherwise be because the government is subsidizing the building of housing projects.

Certain farmers get richer than they would otherwise be because the government subsidizes food stamps. The transferring income to people approach doesn't create any special favors for this industry, versus that it doesn't allow you to go to Washington and lobby them to produce the more of the goods and services that your industry produces because that's allegedly helping poor people. It avoids all the inefficiencies created by having a centrally planned central planner dictate what's produced and how firms behave. If I could go back to one thing that's said, she said several times we agreed when we ended slavery that we owe everyone a fair wage.

Now, I don't remember or something like that.

We agreed that employers need to pay for the value of their labor, that we agree that put money in the Constitution. That's not enough federal.

Because we said that because we said that employers should not be able to use free labor.

That is what slavery should not be able to coerce freely. We agreed as a calphalon, slavery is not saying that someone can't offer you a wage and you agree to accept it. It's saying that you can't, using physical force, make people work for you for nothing.

And I would argue that because of the forced options that most people in this country on the minimum wage have, they are forced into very low wage jobs, that their life situations have forced them into low wage jobs that don't give them the opportunities. When you're working two and three jobs, you don't actually have the time to go to college and get a degree and move up the ladder. So let me just say one thing you said, Jeffrey, is just plain wrong.

The idea that food stamps have not actually created inefficiencies and have not bred an industry or a sector that has profited off of food stamps is just plain wrong. The data shows that actually Walmart has profited quite a bit from food stamps.

That's exactly my point. OK, I completely agree. That's what I was saying. I totally agree with that. So, Sara, the idea would be that you would have something that look. Kind of like Alaska's permanent fund, which sends everyone in Alaska check or a dividend of some sort, which is that if you sent everyone in America five thousand dollars, check everyone, every single person and had that instead of food stamps, which, as Jeff said, he argues, have massive inefficiencies, you could use that instead of those programs.

I'm interested to see your thoughts on that.

Yeah, my point is that we know from situations like that, inefficiencies still will occur even when people are given those checks, because, again, people at the lower end of the income spectrum have to spend those checks to survive on things like rent, which goes to developers and food, which goes to grocery stores. There still will be inefficiencies. But here's the bottom line. Employers, by doing that, by just providing everybody with five thousand dollars, you completely remove any responsibility from employers to actually pay for it.

Again, the people that are allowing them to create profit, the people who work for them generate the actual profit. And so employers should have the responsibility rather than just taxpayers.

So I am saying that the employer should not bear this responsibility. I think it ends up being an incredibly inefficient way to try to accomplish the goal. I completely accept that some people have been forced by the conditions of the market and their luck and misfortunes of whatever their circumstances are to have very few opportunities. And I accept that there are people who have terrible circumstances. But I think the best way to do it is not by trying to make the employers responsible for it, but letting their employers be responsible for maximizing efficiency and producing the most first.

That gives you the biggest economic pie available to redistribute to the people who deserve it. And they are not completely absolved because they pay taxes. Not any. No matter what the structure of the business taxes, they are ultimately paid by people and the people are paying taxes. That supports the transfers to those people who are deemed deserving by society's judgments. Sir, I noticed that you laughed a little bit when he talked about big corporations paying taxes. But I want to get at something.

We appear to agree that there are in our current system a lot of inefficiencies that are bad. And we're in a situation. And it is a situation, Jeff, as a libertarian in which your afternoon, which is that no one agrees with us and no one listens to us. No Republicans support raising the minimum wage to fifteen dollars an hour. So what are some other alternatives that could get us closer to poverty mitigation that could work with what we currently have in Congress, where we're dealing with Democrats who are saying we are supportive of raising the minimum wage, but the Republicans who are in Congress are not the people who are interested in thinking about poverty mitigation the same way they're not talking about a UBI, they are talking about tax cuts.

When you're thinking about either making the case for raising the minimum wage to Republicans or thinking about other ideas for poverty mitigation, where do you go?

So one thing that actually we have been able to agree with on with some libertarians and Republicans is that we do need to reduce people's dependence on public assistance, actually. And it is shown that raising the minimum wage reduces people's dependence on food stamps, on other forms of public assistance. So raising the minimum wage reduces the burden on the taxpayer, on the government by allowing employers to pay their fair share and then reducing people's dependence on public, since that is one area that we have in common with some Republicans.

Let me say a few things. First, I don't want to leave the impression that libertarians advocate adding a universal basic income on top of the current social safety net. Libertarians think that if we could replace the existing social safety net with the universal income, that is plausibly an improvement. But many libertarians would still have severe qualms about the existing generosity of the current social safety net. They would say there might be maybe there's a role. For some, it probably shouldn't be federal, it should be left to states and should probably be less generous just so I don't mislead.

But on your question of what other things can be done to help people who are poor. Libertarians have a few things that they emphasize quite a bit, which is repeal of regressive regulation. Lots of regulations are especially bad for poor people. This includes land use regulation, which makes it hard for people to afford housing because we restrict the density of buildings the highest. Buildings building more inner cities that forces people with lower incomes to live farther away, to have longer commutes, have less access to jobs, to stores and so on, similar issues with occupational licensing has effects of two kinds.

One, it keeps relatively poor people from entering certain professions because they have to spend money or spend time getting degrees in order to practice those occupations. At the same time, those licensing restrictions raise the cost of the goods in those occupations of the being produced by those occupations. And that, of course, has a bigger negative effect on people who are poor. And there are lots of other examples. Child care regulation is another good one. There's tons of regulation of childcare.

Whom does that harm? Especially poor mothers who can't easily afford daycare and be able to hold jobs because of the regulation, which raises costs so much. So I'm going to guess that you probably don't think that these ideas should replace the fight for the 15 dollar minimum wage. And my efforts to join us all on one side of the argument and a little quixotic, but what's your what's your last point on this particular issue? Because I think that I agree with Jeff.

The occupational licensing issue is particularly interesting because of how in my own personal experience, it hinders African-American business owners. For instance, you can get into a very weird place with the licenses you need to do African hair braiding. But what is it about the 15 dollar minimum wage that makes it your central issue?

And the central issue for this conversation, the current debate is how much should the minimum wage be and should it apply equally to everybody in this country? And and so, therefore, 32 million Americans would get a raise from a 15 dollar minimum wage. And by eliminating some minimum wages, we reduce racial inequity, legacies of slavery and severe gender discrimination and harassment.

I just want to thank both of you so much for joining me. Sara Jayaraman is the president of One Fair Wage, a group that advocates for raising wages and working conditions for restaurant service workers. She's also director of the Food Labor Research Center at the University of California, Berkeley. Thank you so much for joining me. Thank you. Jeff Miron is a senior lecturer at Harvard and director of economic studies at the Cato Institute, a libertarian think tank based in Washington, D.C..

Thank you for joining me. My pleasure. Thank you for having me.

If you want to learn more about the minimum wage, I recommend reading the full report from the Congressional Budget Office published in February about what Biden's bill to raise the minimum wage fifteen dollars an hour would actually mean for jobs and the economy and for the policy wonks. I know who you are. I also recommend the Bureau of Labor Statistics February report on the characteristics of minimum wage workers. You can find links to both of these reports and other episode notes. Finally, some of you called in with your own stories about student loan debt after last week's episode.

Hi, my name is Kendra, an African-American woman who graduated from George Washington University in 1997. My experience has been chronic oppression due to student loan debt, accompanied by low to no income over several years. There should be complete forgiveness for those who have suffered such a burden. I'm Charle from Vermont and I have over fifty thousand dollars of student loan. There's nothing I can do but continue to pay and hope that when I die, the remaining debt doesn't carry on to my children.

The argument is a production of New York Times opinion. It's produced by Phablet, These Guitarists and Vishakha Darba, edited by Alison Brusic and Paul Schumann with original music and sound design by Isaac Jones and fact checking by Michele Harris.