Episode Summary: Does the Market Really Pay You What You’re Worth?

Podcast: Pitchfork Economics with Nick Hanauer
Host: Civic Ventures
Date: August 12, 2025
Guests: Marshall Steinbaum (University of Utah), Saru Jayaraman (UC Berkeley, ROC United)

Main Theme & Purpose

This “Back to Basics” episode tackles one of the core beliefs of neoliberal economics: that the labor market pays every worker “what they’re worth” – a concept rooted in the theory of marginal productivity. Host Nick Hanauer, co-host David Goldstein (“Goldy”), and their guests—economist Marshall Steinbaum and labor activist Saru Jayaraman—debunk this notion. The conversation explores where the idea comes from, the damage it has done to both economic policy and working people, and the reality that power, not individual worth or productivity, determines pay.

Key Discussion Points & Insights

The Myth of Marginal Productivity

• The Core Assertion:
  The mainstream economic belief (taught in Econ 101) is that workers are paid according to the value they add (their “marginal product”).

• Refutation:
  Both hosts and guests challenge this, arguing that it is a justifying myth to preserve existing power structures and inequality.

Neoliberal Roots and Motivation

• Origins: Nick reads a telling quote from John Bates Clark, who openly framed marginal productivity theory as a way to pacify workers and prevent social unrest ([03:00–03:56]).

  “If it were to appear that [workers] produce an ample amount and get only a part of it, many of them would become revolutionists and all would have the right to do so.” – John Bates Clark, quoted by Nick Hanauer ([03:43])

• Function:
  The theory maintains social stability by convincing people that, regardless of how little they earn, it’s what they deserve, suppressing calls for systemic change or redistribution.

Why "Productivity" Doesn't Set Pay

• Goldy illustrates, with humor, how his own pay went up when he switched jobs, not due to productivity, but due to circumstance ([01:20–02:11]).

• Marshall Steinbaum’s Critique ([09:13–13:00]):

  • The marginal product concept is an abstraction that only holds in highly idealized, competitive models.

  • Empirical evidence (e.g., rising worker productivity without corresponding wage growth) refutes the idea that workers get paid what they produce.

  • Raises in minimum wage do not cause job losses as predicted by the model.

  • Wages vary for similar work across firms, further disproving the theory.

    “Workers have been producing more and more stuff and not getting paid more and more. That's kind of the aggregate evidence…” – Marshall Steinbaum ([12:53])

    “If your name was on the first patent application, it could have been on the one that didn't get it. It's arbitrary—it's power, not productivity.” – Marshall Steinbaum ([15:33])

• Gender and race wage disparities challenge the core assumption:

  "It's not that there's something about race or gender per se that makes workers more or less productive. It's because there is a hierarchy of power in the labor market... race and gender are dimensions of that power." – Marshall Steinbaum ([16:06])

Why Economists Cling to the Myth

• Institutional Inertia:
  Academic economists cling to the theory because discarding it would undermine their discipline and diminish decades of work and prestige ([19:28]).

• Just World Fallacy:
  Many believe the world is naturally just and use economic models to rationalize existing inequality.

  "The marginal products theory... has that just world fallacy associated with it. Yes, the distribution of earnings... is the morally justified result of just desserts, people getting what they're worth." – Marshall Steinbaum ([20:15])

• Methodological Convenience:
  Modeling power, status, and unique market conditions is “messy”; it’s easier to teach and research a universal “law” even when it’s wrong ([21:10]).

Real-World Consequences: The Case of Restaurant Workers

Interview with Saru Jayaraman ([27:12–41:20])

• Historical Origins of Low Pay:
  The low wages for tipped restaurant workers are rooted in the legacy of slavery and racist labor carve-outs (like the subminimum wage for tipped workers).

  "The reason the wage is so low in the United States has nothing to do with the skill level of these occupations. It is historical and it is political." – Saru Jayaraman ([28:18])

  "[This system] valued workers for many generations at $0 an hour." – Saru Jayaraman ([32:51])

• Power and Exploitation:
  The power imbalance is not just between employers and workers, but also between customers and servers when tips replace wages. This perpetuates exploitation and high rates of sexual harassment among women in the industry.

  “When you’re a woman... your wage is so low it goes entirely to taxes. You live completely off your tips, and you must tolerate whatever a customer does to you... The customer pays your bills, not your employer.” – Saru Jayaraman ([34:49])

• Economic Effects:
  Raising the minimum wage for restaurant workers actually cuts turnover, boosts productivity, and benefits the industry as a whole—debunking claims that higher pay kills jobs.

  “You can cut your employee turnover in half if you provide higher wages and mobility for workers... The industry has essentially cannibalized itself.” – Saru Jayaraman ([37:53])

• Wider Impact:
  Stagnant low wages for millions drag down the economy and democracy itself.

  “What happens to a country when half working people can't afford to live, consume, eat? It affects all of us... can’t think of a more important issue to save our democracy than to fight for livable wages for everyone.” – Saru Jayaraman ([39:50])

Worker Testimonials: Are We Paid What We’re Worth? ([42:22–45:09])

• A series of voicemails from listeners provide compelling, personal contradictions to the “paid what you’re worth” story:
  • An executive goes from a six-figure salary to minimum wage for similar work ([42:49]).
  • Multiple skilled trade and healthcare workers describe low, flat, or declining pay despite vital roles ([44:03]).
  • "It's a stupid question. We are being paid what we can negotiate." ([45:09])

The Real Determinant: Power

• Nick Hanauer’s Bottom Line:

  • Pay isn’t set by an invisible hand, but by “who has the power to negotiate.”

  • Collective action—unions, higher minimums, labor standards—is essential for a fairer split.

  • In the absence of power, workers are “almost certainly getting screwed” ([48:20]).

    “Employers don’t pay you what you’re worth, they pay you what you can negotiate.” – Nick Hanauer ([45:31])

• Historical Evidence:
  When unions were strongest (post-WWII–1970s), wage growth tracked productivity. Deunionization and neoliberalism broke that link.

Notable Quotes & Memorable Moments

On marginal productivity’s origins:

“If it were to appear that they produce an ample amount and get only a part of it, many of them would become revolutionists and all would have the right to do so.”
—John Bates Clark, quoted by Nick Hanauer [03:43]

On arbitrary pay differences:

"If you happen to be the guy who was there when the patent application was granted... that tends to matter for how much you get paid... It's arbitrary—it's power, not productivity."
—Marshall Steinbaum [15:33]

On gender and racial pay disparities:

“It's... a hierarchy of power... and one or two dimensions of the hierarchy of power is race and gender.”
—Marshall Steinbaum [16:06]

On personal motivation:

“What motivates me on a day to day basis is generally getting angry and righteous about something.”
—Marshall Steinbaum [25:07]

On the legacy of tipping:

"The existence of the subminimum wage... has everything to do with the history in this country of slavery..."
—Saru Jayaraman [28:18]

On tips and sexual harassment:

“You must tolerate whatever a customer does to you... because the customer pays your bills.”
—Saru Jayaraman [34:49]

Listener testimony:

“Are we being paid what we are worth? It's a stupid question. We are being paid what we can negotiate.”
—Voicemail [45:09]

Timestamps of Important Segments

• 00:30: Introduction to marginal productivity and the "paid what you're worth" myth
• 03:43: John Bates Clark quote and the theory's social purpose
• 07:29: Marshall Steinbaum introduction & context
• 09:13: Marginal productivity theory overview and critiques
• 15:33: Role of power and arbitrary outcomes in wages
• 16:06: Gender, race, and the persistence of inequality
• 21:10: Why economists ignore power (modeling convenience, institutional incentives)
• 27:12: Saru Jayaraman interview: tipped work history, power, and injustice
• 34:49: Tips, sexual harassment, and gendered abuse
• 37:53: Data: High minimum wages benefit both workers and employers
• 42:22: Listeners share their stories of pay and worth
• 45:09: "We are being paid what we can negotiate"
• 46:41: The principle’s connections to other economic myths (education, monopoly, etc)
• 47:44: Historical reference: Wage growth and unionization
• 49:50: The case for worker power and collective action

Main Takeaways

• The “market pays what you’re worth” is a myth, serving mainly to justify inequality and prevent social change.
• Empirical evidence directly contradicts marginal productivity theory (productivity vs. wage divergence, persistent discrimination, minimum wage studies).
• The real determinant of pay is power—the power to negotiate, organize, and shape labor standards.
• Historical and institutional legacies (racism, gender, labor carve-outs, union decline) define wage outcomes more than individual productivity.
• Real change requires collective action, higher standards, and rejecting old economic orthodoxies—otherwise, only power (or “pitchforks”) can close the gap between value created and reward received.

For further reflection:

“Rather than being an economics textbook, Econ101 is more like a handy guide to exploiting workers.”
—David Goldstein [46:41]

If you’ve ever wondered why wages are so low, why inequality persists, and why economists keep pretending it’s inevitable—it’s not about your inherent ‘worth,’ but the structure and distribution of power.