← The Money with Katie Show
The Money with Katie Show
How to End Low Wage Work—Forever
01:18:59
A conversation with economist Ben Glasner.
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- [00:00]
A
Hey Fidelity, how can I remember to invest every month?
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B
With the Fidelity app, you can choose a schedule and set up recurring investments in stocks and ETFs.
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A
Huh, that sounds easier than I thought.
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B
You got this?
- [00:15]
A
Yeah, I do. Now where did I put my keys?
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B
You will find them where you left them. Investing involves risk, including risk of loss.
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A
Fidelity Brokerage Services, LLC Member NYSE SIPC I think it is one of the most important myths that we have to break down when we talk about low wage labor and work in the middle class. When we think about the fact that low wage labor is disproportionately done by women, especially in caregiving, education and service roles. Think like home health aides, childcare workers, restaurant and retail staff. Those jobs are absolutely essential to the functioning of our economy. But historically, American political narratives and kind of sentimental narratives have treated as a second best relative to the ideal blue collar labor market. So when we think about more than 20 million workers who earn kind of at that lower threshold, people under $16 an hour, that's a low wage workforce we're actually talking about, not some mental image that many still carry around from the legacy of the 50s, 60s and 70s.
- [01:21]
B
I saw this article titled how to End Low Wage Work Forever shared in Nick Magi's newsletter of Dollars and Data, and it had that clear, classic, meaty, long read energy that I always set aside to digest on a rainy day. Because the problem of low wage work in the United States is an entrenched and frustrating one given how wealthy this economy is, in part because it seems so solvable, like, okay, just raise the wages. But I wanted to talk to an economist, the type of person who evades the easy answers that I, a podcaster, love, AKA Just raise the Wages about how they think elegant policy design with bipartisan support could solve this nationwide challenge that impacts tens of millions of Americans. Today's guest is Ben Glassner, an economist with the Economic Innovation Group. He got a PhD in public policy and Management and is in search of answers for how we could build a fairer and more inclusive economy, which led him to do a postdoc at Columbia's center on Poverty and Social Policy. So this conversation was really fun. And over the weekend, as I was listening back to the first cut of this interview, I stumbled across an analysis from Michael Green, the chief strategist at Simplify Asset Management, that felt eerily aligned with this subject. So I shared it in today's newsletter. So subscribe if you aren't already, because I always put the absolute best stuff that I Find from my time being chronically online in there. The article was about how the parameters used for calculating the poverty line itself, which then really dictates anything that stacks on top of it. You have poverty and then that is what's going to impact like what's considered middle income, et cetera, because this original metric was based on the cost of food spending in 1963. And so green basically explains why this poverty rate in the way that we calculate it does a lot to tell us why even supposedly middle class incomes in the US do not feel sufficient for the costs of participating in a modern economy. It is a fascinating read. And so to spoil the ending, Green believes that if we actually adjusted the poverty rate calculation that was developed in 1963 to reflect the the way the average cost of living has changed and what components of a budget have like really exploded. So think housing, healthcare, education, the quote unquote sufficiency income in the United States would be over $100,000 for a family of four. That is both far above the median household income of around $80,000 and like 3.4x what the current poverty line is for a family of four. So his analysis and this broader conversation about how are we really even calculating subsistence wages right now? What sort of data are we using to tell us what quote unquote enough is? That analysis was in the back of my head as I think about now, the target wages that Ben and I discussed in this episode, which are based off, of, you guessed it, current measures for poverty and median wages. Regardless, the mechanism that Ben is proposing called a wage subsidy was new to me and I think it's a pretty exciting proposal that actually has legs. So please enjoy this thought provoking conversation. Ben, welcome to the Money with Katie show.
- [05:12]
A
Thank you so much for having me. I'm really excited to be here.
- [05:14]
B
Oh my gosh, it's my pleasure. Well, okay, so before we get into the specifics, I would love to start with you just describing your approach to economics. Like what is your baseline perspective or governing philosophy that guides you in your profession?
- [05:31]
A
I love this question, especially because there's just such a wide variety of answers to this. So for me, I think I kind of take two key approaches or two components to it. One is that I think markets are a very, very useful tool. They're a fantastic way of doing lots of different things, but functionally they are still a tool. And I think as soon as we lose sight of that fact, we end up missing some key inform important things. They're a great way for lots of different independent actors with independent preferences and independent views of the world to all come together and try and organize scarce resources and try and find ways to make things work the same time. The second part is that policy is really very important. So when we think about the ways that we have this tool set in front of us, how do we apply it, and how do we think about the best way to get the most use out of it, I think is really the second key part. And I think a lot of times we lose sight of both of those things in conjunction with one another. But I've also done a little bit of snooping on you and your podcast, and I have listened to a small amount, so I'd be really interested.
- [06:33]
B
I'm so curious to know what you.
- [06:35]
A
Think we can dive in, but I want to actually give you the chance to say the same thing, pose the question back, because I think we might be able to find some fun stuff, maybe some frictions on the sides to.
- [06:44]
B
Oh, good. Okay.
- [06:45]
A
Fun.
- [06:45]
B
I love friction. Well, not really, but I. I'm trying to love friction. The way that I would sum it up is I actually completely agree with everything that you just said. I have found a lot of interesting material in the side of economics that looks at it through the lens of class relations and power differentials, power dynamics. And I think last week on the show we had on a. A Marxist history professor, which was quite fun.
- [07:18]
A
That's gotta be fun.
- [07:19]
B
It really was. And so I think that there are pieces of my journey where I don't quite feel like I align 100% with any one particular school of thought. But I find value in a lot of different areas. And I think that the. This isn't a hard science, and I think that sometimes that keeps us stuck or limits our options and limits what people are willing to try.
- [07:46]
A
That makes a ton of sense. And I think if we've got the same baseline, we're going to have a ton of really fun stuff to dive into. One other thing that I'd add to that realistically is thinking about if we start off with the idea that it's tools and policy matters, it's that idea of kind of the sentiment of disconnect from policymaking, I think exists today, particularly when we're talking about young people looking at the world, what can they do? How do we engage with it? How can we solve problems? I think there's a lot of fatalism currently in policymaking, particularly as we find people who are a little bit on the market side of things and policy side of Things, trying to find ways we can interweave. Kind of the social zeitgeist with a fuel to make change. And I think it's really easy to fall into fatalism of saying, well, nothing can do anything, everything is bad, all things are horrible. How do we make things better? And I think that there's still a lot of really good space to make big changes that can actually help people's lives. So I really would love to kind of talk about where we can find that space and where we can make some of the lessons we've learned in economics apply to even those people who feel a little bit disconnected from it.
- [08:47]
B
So feel free to take this question wherever you want to.
- [08:50]
A
Yeah.
- [08:51]
B
What is the state of wage labor in America right now?
- [08:54]
A
I would say the state of wage labor is better than it has ever been and still nowhere close to how good it could have been.
- [09:01]
B
Huh.
- [09:02]
A
I think the reality of today is that when we look at the wages of the typical worker, it's at an all time high. We just survey thousands and thousands of people, look at the administrative data, look at the household data and say, how much are you making per hour per week? People are making more today even after adjusting for cost of living. But the actual peak that we're at right now has come in big ebbs and flows. There's been long periods of stagnation and short bursts of progress that has led to huge losses in long run wage gains that we could have gotten with slightly different policy decision making. So I'm going to go with the hmms and also the general sense. The fact that me saying it's an all time high is surprising and it should be. I think we have a lot of a sense of things are worse than they've ever been or things haven't changed, we haven't seen progress. That's not a surprising feeling because we have lots and lots of things in the world that make us feel that way. But when we start to break down the distinctions about where it's at, I think it'll come through a little bit more clearly as to what the typical worker today is doing better. Even if we have really serious pockets of hardship that haven't actually seen the progress that we would love to have.
- [10:12]
B
Seen make, I am not surprised that median wages are at or near the top. I mean, I think that I've seen those charts on the Fred website to know that that's, that's the case. I think where you got my was when adjusting for the cost of living. And I think that the main piece that makes people feel like things are worse is housing because it's such a proportionally significant component of the normal household budget that when that starts to feel tight, everything else downstream of that feels impossible to manage. I'm curious if you can say a little bit more about things being better than ever, even inclusive of cost of living considerations.
- [10:59]
A
Yeah, this is always the fun one to dive into and it gives me the opportunity to get really wonkish with this.
- [11:04]
B
Well, I see you have a whiteboard behind you, so I'm expecting wonk. I am, I am fully anticipating wonk.
- [11:11]
A
So there's a few ways that we think about cost of living. I think a lot of the times we just throw it out there saying we adjust for inflation and people are kind of left in the dark about what's happening, how we're coming to this, are people just saying it's good enough and then we, yeah, wave our hands and say it's at all times high. What actually happens is we take surveys regularly of people across the country and ask them what are you spending your money on? How much split is going to different pots? And then we use that to create a bundle of goods or a sense for like how are people spending over time. We then use that spending real data and then look at the cost of different products and try and assess over time how the cost of living has shifted both within goods and across them. So when we think about the cost of housing being truly at all time highs, it is very expensive to think about entering into buying a home. It's very expensive to save for a down payment. It's very hard to accumulate that much capital. That is all completely real. No one is saying that isn't the case. But there's other things that we're also spending significantly amounts less on. The cost of food as a share of your total income has gone down dramatically over time. The cost of services, of durable goods, things that we're spending money on in some buckets has gotten cheaper relative to our income versus other pockets that have gotten more expensive. Things like housing and healthcare drive up the cost of living predominantly relative to other things. And they also are hugely salient. They feel very important. And so we don't want to think about it as the cost of living isn't important or that we shouldn't be thinking about why housing is driving up the cost or why housing is driving up things like anxiety about my finances. We aren't trying to ignore any of that in any of the cost of living literature. It's just a matter that we can bundle all that together and say, you're probably still doing better relative to wage that you're earning than someone in the past. But had we had better housing policy, better healthcare policy, we'd be doing even better than we are right now. And also massively reduce the anxiety about costs. But the reality of the way it's experienced is still important. We don't want to disconnect ourselves from the fact that if people are saying they are struggling, we can't just say, well no, no, no, the data is telling me you're not, so ignore it. It's much more about if you're telling me that you're struggling and the data is telling me this other story here, why is that? What are the things that we can be doing to solve it and how do we think about that informing policymaking as a whole?
- [13:30]
B
Do you have an operating theory of where that disconnect is coming from?
- [13:35]
A
So there's a few theories on this. I think vibe session is usually the term that we hear a lot thrown around. But outside of that, there's also a few old heads. We've talked to a few people. We actually got Paul Krugman to do a guest essay for us on a recent analysis of the American worker over an extended period of time.
- [13:55]
B
Oh, that's great.
- [13:55]
A
And one of his theories, and I've talked to a few of my behavioral economist friends about the same thing, is the sitcom ification of our perspective of the past. So I think a lot of people try and imagine, well, how good was it way back when? Why do I not feel the same? And you'll hear excuses like friends was in a rent controlled apartment or home alone, had a family that just happened to fall into it. But like people see these images of the past and they think of themselves as why don't I achieve the same thing Hollywood is telling me life was like back then? And when we've talked to other scholars who have looked at this from a historical perspective or an ethnographic perspective, a lot of the time is that we didn't show the image of what life was like back then. We showed the image of what we wanted to present ourselves as. If we think about things like the classic American picket fence household of the 50s and 40s. Well, we aren't looking at segregated American household in that scenario. We aren't looking at the experience of a woman who was trying to raise a family on her own, who couldn't access the labor market. We're looking at. Here is the image we want to present to the world of where we are at. And I think a lot of the sentiment we have right now is we've bought into that image. We've believed that things were easier back then because that's the image that we have presented to ourselves, which is just a perpetuation of some of the myths of our economy. And I think it's really important to take serious looks at what that myth is, why it was presented to us and why we're still consuming it, and not let that dilute our understanding of the economy today. We have real problems. We should actually address the reality of it.
- [15:21]
B
There is a little bit of a paradox there. I think that you summed it up well when you said it's better than it's ever been technically and also could be so much better. So if we're drilling down on one particular group, the paper that originally brought you and your work to my attention was about low wage work in the United States. And you and your co author point out that roughly 21 million American workers earn less than $16 per hour. Two thirds of those workers are women, and that among men in their prime working years, so this is ages 25 to 54, that nearly 10 million of them, or 14% of them, don't have jobs at all. Something that jumped out to me about this is that the the working class in the United States, as it's discussed politically, usually calls to mind white men who were pushed out of the manufacturing sector from offshoring. This is something that we talked about at length in last week's episode. So for that reason, it feels significant to me to read a statistic like 2/3 of these workers are actually women. What do you make of that?
- [16:32]
A
I think it is one of the most important myths that we have to break down when we talk about low wage labor and work in the middle class. And that stat kind of does two really important things for me. On one level, it is purely descriptive. It's just a count based on descriptions of where people are working, where they're falling. But when we think about the fact that low wage labor is disproportionately done by women, especially in caregiving, education and service roles, think like home health aides, childcare workers, restaurant and retail staff. Those jobs are absolutely essential to the functioning of our economy. But historically, American political narratives and kind of sentimental narratives have treated it as a second best relative to the idealized blue collar labor market. So when we think about more than 20 million workers who earn kind of at that lower threshold, people under $16 an hour. That's a low wage workforce we're actually talking about, not some mental image that many still carry around from the legacy of the 50s, 60s and 70s. On the second point of it though, political shorthand for the working class neos is still very often just men in hard hats doing factory floor work.
- [17:38]
B
Yeah.
- [17:39]
A
And as, as convenient as that mythos is, the reality is that that was never even really the typical or average job that was being held. It's something where like even Back to the 50s, the majority of US workers were employed in the service sector.
- [17:55]
B
Oh, interesting.
- [17:56]
A
Even back then, even back in the 50s. Yeah. So the share has been increasing even since then. So from 1950 to 1980, there's been a continued shift towards services and it was mainly driven by a steep decline in agriculture back in the 50s-80s. So we're thinking about this as agrarian workers shifting into urban service spaces. So manufacturing was still pumping away during that time. But then since the 80s, the drive towards services have primingly been manufacturing now losing out to service sector employment. So we've got a couple transitions of structural change in where we're working, how we're experiencing the labor force. But this idea that there was a time where the average typical median worker was just on a factory floor and that that was inclusive of not just white men, it's a myth and it's something that's worthwhile really interrogating. So I think that when we hear something like 2/3 of low wage workers are women, it's surprising then the context that the idealized working class are men on factory floors. It's not surprising given the context of where and how we've traditionally valued weight work that women have found themselves kind of pressed into.
- [19:03]
B
We will get right back to this conversation with Ben after a quick break. After all of the hustle and bustle this month, what's the moment that you look forward to most? For me, it's slowing down, cozying up and being present with my loved ones. And that is exactly what Cozy Earth delivers. Luxury comfort that makes home the best place to be when all of the events and holiday rushes come to an end. I'm not sure at this point who in my household loves the bubble cuddle blanket more if it's me or Sam Cat. But at this point, it has become the default blanket that we are all fighting over. Try them out for yourself with Cozy Earth's 100 Night Sleep Trial. If you don't love them, you can return them hassle free. Give yourself and your loved ones the gift of everyday luxury. Head to cozyearth.com and use my code MWK20 for up to 20% off. And if you get a post purchase survey, be sure to mention that you heard about Cozy Earth right here. That's cozyearth.com code MWK20. I'm gonna float this one live. But as we're talking about the service workers and the depression or stagnation of wages at the lower end of the spectrum, I'm going to make the classic correlation causation mistake here and say is it possible that a lot of that wage suppression is due to the fact that a lot of these jobs are feminized and tend to pay less because of occupational segregation?
- [20:47]
A
So I'll say that it is possible. And there's a lot of great work by economists who are far smarter than I am, as well as sociologists who are far smarter than I am, ethnographers who are far smarter than I am, looking into occupational segregation at the local experiential level. And I think that when we think about why it is that women have found themselves traditionally pushed into industries that are lower wage, I think it's impossible to break away from the path dependency of our historical narrative around that. So one of the things that I kind of want to highlight about this is that we have had a long history of labor regulation and attempted labor support can take it back to the 1930s push towards the Fair Labor Standards Act. But the reality is that that Fair Labor Standards act of the 1930s is massively different than the one we have today. Over the course of 70 odd years, we saw it consistently expanded, not just in a minimum wage level or occupational safety regulations, but also just in the types of jobs that were covered by it. So today when we think about the Fair Labor Standards act, we think anyone with a W2 who's just working in a job has access to minimum wage protections for ex. But in the past, traditional service jobs weren't even included in it. In fact, of the types of jobs that were excluded from the Fair Labor Standards act, our initial foray into regulating a minimum return to work, the jobs that were excluded were traditionally ones done by women, by black workers, and in particular black women. We want to think really critically about the fact that yes, more women are working in low wage jobs. There are lots of things in society I don't think we need to kind of pretend like there aren't that might be pushing women into that type of work. But we also have failed that type of work generally from a policymaking standpoint, or at least from the historical legacy of it. If I want to be more generous to other perspectives because they might not be here to voice their own supporter opinion on it, but.
- [22:37]
B
Oh, that's so charitable of you.
- [22:39]
A
I'm trying to be nice on this one, but the reality is that we have lots of factors here and we can throw out the fact that like you can't separate the patriarchy out of women's wages in the U.S. i want.
- [22:51]
B
To get into the meat of the paper and I think before we do that, I have this broader question about low wage work as it exists today, the type of wages that people can get. The disconnect, if I were to boil it down as simply as possible, is like the wages that people need to live are higher than what a lot of this work will pay. And this might feel like a stupidly simple question considering you laid out your thesis very clearly for us of like markets are a tool, policy needs to step in where that tool is not sufficient. Why aren't markets solving this problem? Why isn't some sort of sustainable equilibrium being met on its own?
- [23:36]
A
It's a great question on it, particularly because it gets at the heart of what are we trying to ask a market to do. I would love to be able to say that we have a great answer for why markets don't provide our dream scenario of livable wages for all types of work. But the reality is once kind of we let them operate, they generally tend to just be buyers and sellers finding their middle grounds where they can collaborate to create a transaction that makes both people better off or a transaction doesn't happen because no agreement is reached when we're social planners or when we're policymakers, or when people are just invested in how our workers doing that might not be a satisfying answer. And that's a space we might want to think about. Well, what do we have to do to try and help smooth the gears out and get these things to actually happen when we might dream of.
- [24:24]
B
That's partially why I have found work or theory that attempts to look at these things through the lens of power and who holds power so satisfying because I think that these, these theories will often point to the fact that like why might someone be willing to be paid a lower wage than is appropriate? What would put them in that position? Or when somebody who has a lot of power over the labor market by nature of how much capital they have, teasing apart markets as a very blunt mechanism for pricing and allocating scarce resources from the social goals of a Labor market does feel important.
- [25:08]
A
It's great to introduce power into the way that we think about marketplaces. Now in a traditional econ 101, which I think a lot of economists love to both punch at and also use consistently, we don't like to talk about power, not because it's not something that any of us are aware of or something that I'm hoping we're all aware of exists in the world, but more so it's just that it's a complicating factor and we oftentimes save it for later and later and later. After you build more economic intuition, you take a few more courses and then they introduce some of these more complex ideas. When we think about power in the context of a labor market, we often are talking about a monopsony. So monopsony in this scenario or oligopsony is the equivalent on the other side of a monopoly or oligopoly, where just one buyer of a particular good. In this case, we'd imagine a monopsony is a scenario where we have like a classic company town. There's one person who's running a firm, they have all the capital in the town, and they're employing everyone there. And they have a huge disproportionate amount of power to try and exert over the workers in the town. Traditionally thought of as a way of depressing wages. They all are here. They all still need to eat. I can count on the fact that since they don't have any other options, I can pay them less. And this idea of market power distorting and kind of of underpaying or providing a type of market outcome that we're not satisfied with is not new in the world of economics. It's something that I think a lot of the times about unions. The way that we think about worker power to try and combat market power, if there's going to be one buyer of the good, organizing so that there is one seller and having a united front to try and counteract that. We also have lots of policies that try and do this. Minimum wages are another way of trying to resolve a monopsony scenario. We have lots of ways to try and deal with these types of issues, but. But when we think about other solutions to this, there's other ways. I would say that a monopsony is not an efficient market scenario. It's not competitive, it's not going to produce the results that your classical economist is going to love to talk about. So there's middle grounds of compromise on how do we solve These things that we know are problems, even if we might have different ways of thinking about what the problem source is.
- [27:14]
B
You say that the ways legislation has tried to address this problem, this problem being low wage work in the past, have been poorly targeted, expensive or, and I think this is the hardest one, this is the complicated one, had basically unintended second and third order effects that then undermined other policy initiatives. So I'm curious if you can lay out a landscape for us of what has been tried already and why those things didn't work.
- [27:42]
A
So let's start off by just defining poorly targeted. It's really specific to an objective oriented policymaking. When we think about targeting a program, say we're thinking about how do we fight poverty, we should be measuring that program on its ability to target resources to reduce poverty. There's lots of programs out there that have very loosely targeted goals, but very directly targeted advertised political narratives. So for example, if I'm going to say let's target poverty and I'm going to use a minimum wage to do that, the reality is that if you're accessing a minimum wage, that means you have a job or at least have access to the labor market in that way, and you're working. The rough part about minimum wages when it comes to trying to do anti poverty targeting, for example, is that minimum wages are generally worked by people who have a job. So they have some incomes, they're non zero, and most of the benefits actually don't go to people below the poverty line. Lots of minimum wage earners are teens, younger young adults, early career professionals, and attached to a family where there is another earner that pushes them above the poverty line. So minimum wages are well targeted to do wage boosting among people who have jobs at the low end, they're poorly targeted for anti poverty. So we can have policies that do multiple things that are well targeted in some ways and poorly targeted in others. And we end up with this world where we're interacting policies of many different types with many different targeting structures that sometimes counteract each other. So my favorite example of this is we have minimum wages on one side, which again raise the wage floor for workers. So if you have a job and you're working less, it gives you a raise so long as you're able to maintain that job in the same hours of work. On the other side we have something like the Earned Income Tax Credit, which is an income targeted program, not about wage, just about how much you're earning. And it's intended to induce more labor supply. So if we end up in a world where you're increasing the amount you earn for every dollar you earn of income, it adds a little bit on top when you file your taxes. So between the two, they sound like, on the kind of like first impression they would work together. Increase the returns to work on one side and increase the returns to work on the other. The rough part is earned income tax credit induces more supply of labor into a marketplace. Minimum wages increase a price floor. And as you shift the supply out, if you have the same number of buyers, you'd expect price of labor to go down because there's more people in the marketplace trying to work. So you end up with one that's trying to push labor supply out, driving price of labor down, and another that's increasing the price floor, which can end up displacing people who might otherwise have wanted to work. This ends up in a weird spot where you end up having the two that on the face of it should be working together, in theory, working against each other. It's not that they necessarily have huge negative consequences towards one another, but that the targeting of the two policies ends up out of alignment. We want to think critically about every single thing that we put on top of each other because they aren't the two only two policies that we work with.
- [30:37]
B
And I think that there's something to be said too for like, it is my understanding that the tax breaks that are offered to savers to save in a 401k, we know that that reduces the revenue that the government is getting because any dollar you're putting in your traditional 401k is a dollar where that income to the government is going to be deferred. This is everything I write about in chapter six of Rich Grill Nation, how you can get this tax break and invest more money.
- [31:05]
A
But great plug.
- [31:06]
B
It's my understanding that like those incentives don't actually incentivize saving all that effectively. I would wonder if, and surmise that the earned income tax credit probably works a little similarly, where I'm not sure that these incentives are clear enough to the people receiving them that it is actually affecting behavior.
- [31:27]
A
That's one of the most important points, and I'm glad that you picked up on it immediately, is that the saliency about these policies does have huge impacts for how much we can expect real behavioral shifts. So for the income earned income tax credit or other tax credits, oftentimes that's viewed as you get one lump sum at the end of the year, depending on the amount of income you've earned and in the case of the earned income tax credit, also what your family composition is. The idea is that I might be going into work every single day thinking about, well, how much am I going to be paid by my wage, not how much am I going to get in a tax credit in 12 months.
- [31:59]
B
Right.
- [32:00]
A
The impact that it can have, sure has been shown when it was first introduced in the 90s, that it induced more extensive marginal participation and that is more women entering into the labor force. It had extensive marginal effects on women and particularly single mothers. It brought them into the labor force by saying, your take home pay at the end of the year is going to be higher by X amount. And more women are able to say, okay, well this is going to have a bigger effect for me in particular. So I entered in and then had some saliency issues at the same time. There's a huge difference in saliency between saying you will get a check at the end of the year and your wage will be higher today and you will see a higher paycheck every single week that you get a paycheck. And that difference in saliency is going to be one of the big drivers behind why we might actually think a lot of our current policies to induce more labor supply are actually underperforming. They aren't doing as much as we might have hoped they would otherwise be able to do.
- [32:52]
B
And you point out how expensive some of these initiatives are for incentivizing job creation. You list in this paper a couple examples. You know, it looked to me like we were in the ballpark of between 100 to $200,000 per job. Or in the case of steel tariffs, this one was stunning. $900,000 per job. And so by comparison, your proposal, which we'll dig into, looks really cheap. But can you help me wrap my head around why these other approaches are so expensive?
- [33:28]
A
Yeah. And this is exactly where my gut around markets and price effects really comes through.
- [33:34]
B
Okay.
- [33:35]
A
So when we think about things like.
- [33:36]
B
I love a gut instinct.
- [33:37]
A
Oh yeah, it's.
- [33:38]
B
I'm like, I don't want the data. Just tell me what you feel. What's the vibe on this?
- [33:42]
A
When I think good economics, I think feelings and thoughts. It makes me feel icky to do price controls and tariffs. So let's not. But the reality is, is that when we think about things like tariffs, let's dive into that because that was kind of the top line. Biggest one is that it's not that good actors might not still be attracted to the idea of a tariff or specifically a steel tariff. Because there's lots of reasons we might care about steel workers and their industries. Not only the fact that they're human beings and we want humans to be good and okay and have a life, but also that there's national security concerns, there's industrial narratives, and there's also that mixed bag of social norms around steel workers and how we have identity around our work and how we think about that. That the reason why it gets so expensive to save or pursue steel jobs through tariffs is that you end up increasing the cost to tons and tons of other goods. Tariffs are taxes on imports. And so when you tax imports for intermediary goods, you end up making it more expensive to produce everything else reliant on those same goods. Something like a steel tariff to try and preserve a US Steel jobs becomes extremely expensive for every steel job you make. Because you're actually stealing resources from other American firms that were reliant on prices from imports being low. That increases their costs and it ends up making it harder for them to hire and retain work. And it starts to hurt the economy in other ways. So we end up stealing from one hand to support another. And it just so happens that tariffs are one of the most expensive ways we can really think of to steal from one to support a job in an industry we care about. And again, that's not because we think that people are saying, oh, I intentionally want to undercut other American jobs. There's good reasons why people, people think about this and want to pursue it. It's just those are policies that really have big long run costs and second order effects. And I'd much rather take that energy to support American workers and put it into policies that have less significant cost per job saved.
- [35:43]
B
We'll get right back to it after a quick break. You know, you don't have to let big wireless and your overpriced priced phone bill suck the joy out of the holidays this year. Because right now all of Mint Mobile's Unlimited plans are 50% off. You can get 3, 6 or 12 months of unlimited premium wireless for 15 bucks a month. It's their best deal of the year and makes it real easy for you to give your expensive wireless bill the Scrooge treatment. All made Mint plans come with high speed data and unlimited talk and text on the nation's largest 5G network. Plus you get to keep your current phone and number. Turn your expensive wireless present into a huge wireless savings future by switching to Mint Shop. Mint unlimited plans@mintmobile.com morningbrew that's mintmobile.com morningbrew.
- [36:48]
A
Foreign.
- [36:52]
B
This message is brought to you by Apple Card. Apple Card members can earn unlimited daily cash back on everyday purchases wherever they shop. This means you could be earning daily cash on just about anything, like a slice of pizza from your local pizza place or a latte from the corner coffee shop. Apply for Apple Card in the Wallet app to see your credit limit offer in minutes. Subject to credit approval. Apple Card issued by Goldman Sachs Bank USA Salt Lake City Branch terms and more at applecard.com. So let's talk about the solution that you and your co author write about, which is called a wage subsidy. So this comes from a Nobel Prize winning economist named Edmund Phelps. And Edmonds proposed this wage subsidy in 1994. So one of the things that you point to as encouraging about this idea is that it has something very rare which is bipartisan support.
- [37:53]
A
Yeah. Shocking.
- [37:55]
B
What is a wage subsidy and why do you think that it has support across the spectrum?
- [38:01]
A
So wage subsidy for the general context, big picture folks, shout out to my man Phelps. He laid it out in a very specific way. He was thinking about it as a low wage employment subsidy. So the government would pay a per worker subsidy to firms for each low wage employee they hire or retain with the explicit goal of both raising pay for those workers and also reducing unemployment among the low wage labor market or workers who might be at risk of volatile fluctuations. This all came at a time in the 90s when we were undergoing a huge amount of welfare reform and a large focus on how do we support people, support families, families and do it without distorting the labor market. It's an entire thesis of information about the political norms and motivations during this time, which I don't want to drag us into now. But moral of the story is there was lots of people who really cared about increasing the returns to work and also not giving money to people who are not working. Lots of mythos in there, but let's not get sidetracked on that front.
- [39:01]
B
Bill Clinton has entered the chat.
- [39:03]
A
Bill Clinton has absolutely entered the chat and so has a large Republican coalition.
- [39:08]
B
Yeah.
- [39:09]
A
So what we want to think about on our side though is kind of push the idea away from targeting it as an employment subsidy and shift it directly to how can we boost the paychecks of individuals. Before we dive into the really big like meaty details of the program, I want to think about why it has some seen some bipartisan support. So when we think about what types of programs we've seen lots of bipartisan support for things that we keep coming back to the well on. I think the child tax credit is the best example example. This is a program that came also about in the 90s. Similar timeline. Also a Clinton era scenario. And it's one that every single administrative president since Clinton and since it went into effect has doubled up on and put more time, energy and money and expanded it. And it's been done with bipartisan support. One of the reasons why is it's tied to income. You don't get it if you don't make money. And if your family doesn't have money, you aren't getting any other than a very brief, beautiful period when the expanded child tax credit went into effect in 2021. Shout out to CTC fans. But it's a program that targets primarily middle income Americans. Very pro family because it's about how many kids you have and it has a little bit of everything for both center left, far left, center right, far right. In that you can say it's good for kids. Kids, particularly low income kids, generate a ton of longer and benefits if you can get them access to resources early in life life. It's targeted towards trying to support family income. It also benefits through a tax credit for middle income families. And there's for the people who want a little pronatalism stuff. It's about having more kids. Like if you have another kid, you get more ctc. So like there's that for that side of things.
- [40:46]
B
That's hysterical.
- [40:47]
A
Yeah, it's. It's a program that's seen bipartisan support because it has a little bit of everything. The wage subsidy as it's been outlined in the past is also about if you work, then you get it. It's explicitly conditional on work. It boosts the earnings of low income individuals or specifically low wage individuals. And it's trying to do something like saying we're increasing the returns to work but not distorting market incentives. So you can still pick out like a little bit of everything across the distribution of people interested in it. It's one of the things that helps people come back to it as a bipartisan idea. But it's also something that hasn't been really galvanized into either political camp. No one's been able to stake a flag and say this is ours, our thing. Exactly. So it still has a lot of open for people to come in and say, well, you haven't claimed it, I haven't claimed it. We think it can do good stuff. Let's just like really Quietly see if we can talk about this without anyone getting too heated and no one gets super political about it for a second and just say, is this a good idea?
- [41:42]
B
I want to get into the details of how something like this would work and tease apart some of the differences between a wage subsidy and a minimum wage. So you have your own proposal for the best way to implement something like this, what you think this could look like. And I want to drill down into some of the major components. So let's start with the target wage. So it's my understanding that you think the target wage should be $16 per hour. I assume that that's like, you know, you're setting that federally. Why $16?
- [42:13]
A
Yeah. So there's a few reasons why we target $16 specifically. And let's start off by just saying a target wage is going to be the wage that we want to move wages in the low end of the distribution towards. So $16 an hour represents 80% of the national median hourly wage among hourly workers. According to data in 2024, we first started dragging this. That value has gone up slightly over time. But 16 is kind of where we're starting there. It has a couple convenient factors. One, it's close to the fight for 15, socially normalized idea of a $15 minimum wage. I would say it's for the sake of the fight for 15 fans out there. 15 is now shifting to a fight for 20 for the name. The name still needs to be changed a little bit because fight 15 worked well. So 16 is bigger than 15. Got to love that for our proposal. But it. The other thing is, minimum wages also traditionally are targeted and passed by political actors, people who are interested in creating an outcome and not having a big negative effect. Now, I don't think anyone's going to argue that if we instituted a 200 minimum wage, there wouldn't be any disemployment effects. But there's somewhere in between that we would say political actors probably look at and say, well, maybe if I do this, it won't be so big of a deal, or this will be enough of a margin that it's workable. And that usually ends up being about 40 to 60% of national median wages, or in the case of local minimum wages, state or city median wages. So that 40 to 60 range is what minimum wages usually are targeted at with a wage subsidy. It's not going to have the same potential disemployment effects that a minimum wage would have. So you can go higher than that. So we get to choose a target wage that's above and beyond what the traditional minimum wage would target at the national level. Huh.
- [43:50]
B
So it's typically a minimum wage when they are designing that sort of policy. Because the minimum wage in San Francisco is different than in. Yeah, Tupelo, Mississippi. They're trying to target 40 to 60% of the median in any given area.
- [44:06]
A
So that's what seems like ends up happening. Even if it's not explicit within a policymaker's mind at the time. We've seen that that's usually is the range that we end up seeing minimum wage placed in.
- [44:17]
B
So 40 to 60% of the, of the median is what, what tends to work out as the minimum. And so your thinking is you can go higher, strive for 80% of the median with this target wage.
- [44:32]
A
So when we think about a wage subsidy, what we're talking about is a way of trying to just top up some of the earnings of a low wage worker that they're getting from their employer to some level that we're interested in trying to get them towards. We break this down into a couple of pieces. We want to talk about first what a target wage is, what are we trying to move a worker towards and then how much of the gap are we trying to top up? So if someone was making $7 an hour and we wanted to get them towards say $16 an hour, there's going to be potential to say let's cover the entire gap, let's get them that full difference between 7 and 16, doesn't matter how much and let's just give them that full amount. Or we can say let's cover some portion of that gap and move them up the distribution. If we just covered the full gap, then functionally we'd be lifting the wage floor up for every single worker to the left of our target wage, up to the target wage itself, doing a full fill in. If we cover some share of the gap, then that ends up producing something where we still have an upward sloping curve in wages where some of the portion is filled and as you move up the wage distribution, get closer and closer to the target wage until eventually the subsidy disappears. It shrinks as you move up the wage distribution.
- [45:41]
B
The idea is that the government is going to cover some of that difference that the market is not covering itself. And it's my understanding that you suggest again, an 80% is kind of the sweet spot here. 80% of the difference between the employer supplied wage and this set target wage. And I'm curious if you can talk us through how you're thinking about the economic incentives there. Why is covering 80% preferable to covering a hundred percent?
- [46:13]
A
Oh, absolutely. I'm going to take a sip of coffee because this is my language.
- [46:16]
B
Let's go caffeinate.
- [46:18]
A
So incentives. Gotta caffeinate for incentives. When we think about the way labor markets work, we often want to think about people responding to the signals they see in the marketplace. If we're talking about wages, that's the most salient signal we can think of for why a person that views one job as better than the other first and foremost. So by topping up portions of the wage distribution, we can say we're increasing the returns to work for some jobs above and beyond what they would have naturally looked like. So that $725 an hour job now looks better because there is an additional wage subsidy layered on top of it. And it compresses the wage distribution so that there's more jobs in kind of the same relatively similar bin of work, all competing against each other for the same pool of workers. On the other side of this, it also means that there are more jobs in more places that can overcome reservation wages. So how much I need to see in the labor market to make myself consider whether or not I should or shouldn't take up a job. Like I might be saying to myself, given my child care constraints, given my education standards, given the idea that I have a school or job or a hobby or just a social life I care about, I'm not going to take any job for less than $14. And if I look around, I say, well, there's only one place that's paying me more than that and it's Subway. I guess that's my only option. If we have a wage subsidy and compress the wage distribution for that low end, suddenly there's Subway and then there's also the mom and Pop bookshop down the street that couldn't afford to pay me the same type of wage could when you add the wage subsidy on top of it. So what we're doing is compressing the wage distribution, increasing the number of firms who are potentially going to compete for the same pool of workers, and closing the gap between reservation wages and employer supplied wages. And firms now have a little bit more wiggle room in what they can actually provide as a wage while still being able to attract the same type of labor because they might be able to offer things that aren't on the wage side of things that mom and Pop might not have been able to compete with Subway for wages, but Maybe they're able to offer more hours worked, they might offer a better path towards a career that someone's interested in. And they might be able to offer just a better Management System.
- [48:22]
B
80% of the median is the target. And then you're gonna, you're gonna fill the gap that, you know, equates to about 80% of the difference between whatever that job is offering and that target wage. So two follow up questions that I have. The first is, I can imagine someone hearing that and going, well, why is this better than a minimum wage? Why not just make the minimum wage $16?
- [48:48]
A
So a minimum wage is a price floor, right? So what this means is that no work can be done for less than that value. So in the case of our mom and pop shop, they weren't able to offer that high wage to begin with with. They simply are not going to be able to hire someone now. Okay, so we're seeing less of a demand in labor in the available range. You end up reducing the number of firms who compete with each other and we can end up in that monopsony scenario we were talking about earlier. So a minimum wage itself, while generally the literature seems to show that when there's politically intelligent and targeted minimum wages of certain levels of increases have small, maybe some small negative effects on the periphery, particularly around not, not people who have jobs, but people who are looking for work, that minimum wage increase is not going to accomplish the same goals for a collapsed wage distribution with a large demand for labor across a large number of firms. So that's one reason not to just pursue the minimum wage on that standpoint. The other one is that it doesn't just change which types of work is being offered. It also generally has systematic effects on the types of workers who are going to have an access to that labor market. Oftentimes when we think about work, we do have a social construction of ableism. We think about the idea that if these are workers, they should be returning the same amount of work. And if you don't meet that standard either as a firm or as an employee, then I guess you have to find something else to do or get good is the framework. But there's people who are simply going to have larger barriers of entry and that can reduce their ability to access these types of labor markets. Creating a world where we can say it's easy for a firm to hire you regardless of your skills or abilities, so you can onboard get experience and also overcome some systematic barriers that you might be facing is a hugely beneficial thing. And if we just Say, increase the cost to hire. We exclude those people who might not be able to make that threshold.
- [50:38]
B
I want to come back to that. My other follow up question is, it seems to me if I'm an employer and I know that I can get some help on hitting a higher wage, I might offer even lower wages. How do you respond to that potential of essentially private firms offloading more of the cost onto the government? I would imagine that's probably the pushback that you hear the most, but I'm curious if that assumption is true.
- [51:10]
A
Yeah, it is absolutely a first order concern and it's one that we should have. My usual response to this, and this is mostly for the labor econ crowd that I'm most of the time talking to, is we can't forget about competition. So let's say the wage subsidy doesn't go into effect. We're imagining that there's enough market power right now for the person to sway and down weight the wages that they're offering. Okay, why aren't they currently? What's preventing them from going down? Because not everyone makes the federal or state minimum. What's preventing that is generally the idea that there's competition for that work. We believe productivity, at least in most scenarios, has some impact on wages. Because if you're really productive and people are underpaying you, another firm can come in and compete for you and you can go somewhere else. You'll go to that better offer because you know what you're worth. If we put the wage subsidy in place, the way we're designing it is it goes straight to the paycheck of the employee, not a subsidy to the firm. This is the difference between our proposal and Phelps. So since the firm never sees it, it just goes to the paycheck of the worker. The only way that they could succeed in cutting down that wage or kind of racing to the bottom would be by underpaying relative to what another firm might value that worker at. So if you were getting paid $10 an hour and suddenly the firm that sees the wage subsidy go into place says, oh, I can actually pay you 9. You'll still get more. Well, the firm next door says, oh, you're only paying them 9. I would happily play 950. 50 because they're worth 10. And then you can start competing off of that.
- [52:41]
B
Interesting. Okay, yeah.
- [52:42]
A
And that's just on the wage side. Now, since we've started collapsing the wage distribution so mom and Pop can compete against Subway in this scenario, they're also not just saying, I'm going to compete on wages, they have to compete on our sustainability and security, on health insurance, on retirement. All these non wage benefits that people generally have a hard time accessing and that we've put a ton of time and energy trying to get these firms to offer these workers now becomes an access that they can compete against in some degree. We also have to expect that this is a trade off that we're already engaging in the Earned Income Tax Credit, snap, ctc, we're already flooding these types of firms with this type of social support, but they're all very indirect. If we're willing to engage with it there, I think we should be willing to take it head on and say we believe there's a minimum return to work or at least we should be increasing the return to work for this portion of the distribution and we should tackle it head on.
- [53:32]
B
Well, I'm glad you brought that up because I think that what this concept reminded me of and had me mulling over is the Number of Fortune 100 companies who employ thousands of people who earn so little that they do receive SNAP and the Earned Income Tax Credit and are on Medicaid. And in some ways it's hard not to look at those things as handouts for corporations like that. The corporations are ultimately the ones that are benefiting most from these programs because it allows them to pay such low wages. And so you've brought up the mom and pop example here. How do you think that this would impact or be designed differently for a multinational corporation than a small local business? Is your thinking that because these multinationals are still able to pay more than small businesses in many cases, that it will ultimately be a boon for the small business sector or is there something else going on here?
- [54:31]
A
So I think the impulse is right. I think the reality, especially given the wage level that we're targeting with something like our proposal, at 16 an hour, we're below the current federal or not federal, but current voluntary minimum wages affirms like Amazon and Walmart. The types of hourly returns to work that these companies are offering are already superseding much of this, especially in areas that are more urban and have higher prevailing wages than you might find in rural Mississippi or Alabama or Texas or my home state in upstate rural New York. Like the reality is, is that much of the work that is happening, yes, there are workers who are on those programs. And I want to just shout out, that's not a reason for us to try and shrink those programs in any capacity. It's more of a story of like, we need to have robust safety net to help people as they ebb and flow through these types of labor arrangements.
- [55:21]
B
Right.
- [55:21]
A
But the idea that a wage subsidy is going to be padding the books of our largest, biggest firms, I think is a little bit unfounded, particularly because the competition aspect is still going to be there. I would view this much more as every dollar that is induced through some amount of work also comes with that dollar that's coming from the employer. They're helping cut the cost of supporting people that you wouldn't have had any help cutting the cost of otherwise. So if someone was coming back with some set income that is purely based on government transfers, anything we can do to induce some of that to also come from the bill of an employer, I benefit because that person still needs to eat, that person still needs to be housed. If we can induce more of that from competition and work, that's good for the total fiscal scenario.
- [56:05]
B
You state explicitly in the paper, you know, we are not wading into this debate about whether the minimum wage itself should be higher or whether it will have negative effects on employment if it is raised. And I'm a little curious if that was just a decision you made because you wanted the paper to stay focused on the wage subsidy and not get pulled off sides. But I'm curious why that felt like something that you didn't want to engage with. Economists try to shy away from making moral judgments or to make this about power. But when companies are consistently posting higher profits that accrue primarily to their executives and shareholders, do you feel that that undermines the case for a government subsidization of wages overall?
- [56:53]
A
This question takes me back to quite a bit of, like, almost PTSD to my grad school days, specifically because.
- [57:00]
B
Oh, my God, I'm so sorry.
- [57:01]
A
Oh, no, no, it's. It's. It's exactly. I would like to say that this is what I trained for with like, some type of a montage sequence. I went to grad school in Seattle during the Seattle minimum wage expansion, with my particular department having a bunch of funding to research the Seattle minimum wage. I also had a job market paper that was looking at how minimum wages interact with platform work, like Uber Lyft. And that was tons of fun on the job market, where I don't think there's anything that gets kind of economists more riled up than minimum wage papers. It was like throwing blood in the water at every single time I had to give the job talk. And I'd be like, I just want a job. Please someone hire me. And they're just riled and getting excited. So when I think about minimum wages, there was definitely an intentional decision not to let the wage subsidy drag. Have to get pulled into the discourse on minimum wages explicitly because we think of it as a different policy. And it is. At the same time, I think it's completely reasonable to think about, well, how does it interact with the world where we already have minimum wages across states and localities and at the federal level that is highly politically involved, very controversial across different groups, and also is very important to lots of people. It's a very salient thing. So one of the things I'll flag is that a lot of the minimum wage literature generally points towards either muted or net neutral effects. Some negatives, particularly around job searchers or people who might be slightly displaced or new entrants into labor markets. But we don't see something like a minimum wage goes up by a dollar and suddenly firms start firing every single one of their employees. There's a little bit of organizational restructuring. So like restaurant might go from saying having a waiting staff to doing just like bench order. So you order and then pick up your own and take it to your table and self bust like that. That's a little bit of a push that we see in some literature. But the thing that I think is most important about this is that when we talk about a wage subsidy versus a minimum wage or kind of the idea of subsidizing wages of these types of firms is that the places that are going to see the biggest benefit from something like a wage subsidy are not the large multinational corporations centered in our biggest cities. What's going to see or what we're going to see from something like this, since it's a national program, is those labor markets that have been lagging behind, left behind by our general economy and that are filled with some of our most marginally attached workers see the biggest benefit. It's the places where more people are making eight or nine dollars an hour that would see huge inflows of generous and impactful support that a minimum wage can't do. If you increase the minimum wage to 15 an hour right now, no new job appears in rural Mississippi Be but a wage subsidy suddenly increasing the return to work, nearly doubling it for these low wage workers. That's a huge increase in the amount of money that's both entering into that place and how much more people might be enticed to work in those places. We don't want to think about labor as purely about employees. We also need employers to have jobs available and to make those jobs pay well enough. And some places truly have just been left behind by our economy and we need to find ways to try and restart or jumpstart those places again. That was another sigh.
- [60:05]
B
No, no, I'm, I'm sighing because I'm like, I, I think that that is the most. I guess I'm just putting my marketing hat on and I'm going. I think that's going to be the biggest narrative battle. But I think that, I think that explaining it in the way that you just did kind of unlocked something for me. And particularly because of your point about like in Amazon, in, you know, Long island or wherever those warehouses are outside.
- [60:31]
A
Of wherever they are of massively populate.
- [60:34]
B
You know what's so funny is I grew up in a town that had a huge Amazon warehouse that it was, you know, oh really, like a mile from my house. And this was in the like mid 2000s, early 2000s. And so for a while, every Amazon package that I got in college had my hometown on it because it all went through that same distribution center. So yeah, you know, the Amazon warehouse in town, that was just like, that's, that's just, you know, par for the course.
- [61:00]
A
I'm gonna totally derail us for half a second. Were you ever thinking about working there?
- [61:04]
B
I actually had to do. Here's a fun story for the podcast. I got in some trouble when I was 17.
- [61:12]
A
Okay.
- [61:13]
B
And I had to do community service. And for some reason the community service was packing boxes in this Amazon warehouse. So I had to do our. Yeah, I mean, I was like, in retrospect, retrospect, I'm like, how did Bezos pull that one off?
- [61:29]
A
Talk about labor subsidies.
- [61:31]
B
Yeah, really, You've got a bunch of like 17 year olds in there packing boxes. But yeah, I did, I did work in that warehouse a little bit. Not paid though, just to get that off. Something off my record, I guess that I'm just so cynical about these big firms that I, I just imagine like, okay, there's going to be some, some room of people in, in Amazon headquarters or whatever. Headquarters, Kroger headquarters, another big Cincinnati area company that are going, okay, how can we get a piece of this pie? I think at some point, do we maybe just need to get comfortable with the fact that like, yeah, maybe these corporations are going to benefit marginally, but like the vast majority of the benefit is going to go to these people we're actually trying to help. And so there are always going to be trade offs where maybe someone that you don't really want to be subsidizing is going to benefit. But like at the end of the day, that's the rub, that's the trade off you have to make.
- [62:22]
A
And I think the trade off story is really important to kind of of illustrate the fact that we have to make choices at a certain point. We do. And I think there's a bit of pragmatic progressivism that is currently missing from a lot of the skepticism around like big employers in particular.
- [62:37]
B
Pragmatic progressivism.
- [62:39]
A
That's the way I think about if we're going to treat markets as a tool and we're going to treat policy as important, we have to make trade offs about the fact that like, what do we want to prioritize, what are we going to be giving and what are we going to be getting in return? And I think finding ways to really massively boost earnings for low wage workers is worth that type of a trade off. Especially when we already are doing so much to try and induce these large firms just to come and show up in places. I live down the street from Amazon HQ2 and I don't think anyone who is familiar with that discourse was really proud of seeing just how much we were throwing at massive employers to try and induce them to come to places. And it's not a unique story. We do lots of things that are just kind of semi tertiary indirect subsidies to try and make someone somewhere move a business to another place when we should just be much more hands off and say if we're trying to make more work at a certain wage level, induce it and support it, we can be more direct and intentional in our choices as a policymaker and do that to the benefit of people.
- [63:37]
B
So we've talked a lot about the Earned Income Tax Credit and you do point out that there are some similarities. And I want to take a beat just to talk about how the Earned Income Tax credit actually works and why a wage subsidy might be preferable. Because I think what I'm. Where I'm going with this is I assume the Earned Income Tax Credit is a relatively expensive program and if every dollar that could be used as a wage subsidy goes further, would there be a world where, if you were pitching your king for a day, right, where you'd be like, oh, let's just reassign all the money that currently goes toward this program and this other bill, let's all put it towards this, this.
- [64:20]
A
So you throw out the hardest question, which is budget allocation, especially because the EITC is probably one of the most popular anti Poverty or anti working poverty programs in the country.
- [64:31]
B
Working, yeah. Working poor though. Right to your point.
- [64:32]
A
You have to be working poor.
- [64:33]
B
You have to be working. Yeah.
- [64:35]
A
The other thing I'll flag on this is that just to put some numbers on it, the EIDC is roughly about $70 billion a year. A little bit less.
- [64:42]
B
Oh, so it's not that expensive?
- [64:44]
A
Well, depends on who you ask. I'll take $70 billion.
- [64:47]
B
But well, I mean isn't the mortgage interest deduction cost like hundreds of billions of dol a year?
- [64:52]
A
I'll do another one. The deduction we put on retirement support, specifically 401ks is hundreds of billions of dollars a year. I think it's like more than 200 billion.
- [65:00]
B
Yeah. So I'm, I'm, I guess I'm just thinking in comparison to those things and I'm like, oh yes, cheap.
- [65:06]
A
Yeah. CTC is also more expensive. It's in the $110 billion per year, for example.
- [65:12]
B
Okay.
- [65:12]
A
Do you know how much a childless adult can qualify for the max EITCAT?
- [65:17]
B
See?
- [65:18]
A
Oh, it's an annual tax credit.
- [65:21]
B
2000.
- [65:22]
A
It is. 649 and 24, 25. $649. That's how much a childless adult will get.
- [65:29]
B
A childless adult?
- [65:31]
A
Yeah. If you have no kids. 649.
- [65:34]
B
So you have to have kids. The pronatalists are at it again.
- [65:37]
A
If you hit three or more qualified children, that rises to $8,046 as a check. That's huge.
- [65:45]
B
Massive.
- [65:45]
A
Like yes, kids are expensive, but functionally what we're saying is our biggest anti working poverty tax credit. Most directly targeted low income individual with a job. If you don't have kids, you get next to nothing. And that to me feels like a big mixture of family policy and worker policy. It's the mixed bag of the two.
- [66:04]
B
Yeah.
- [66:04]
A
And when you add the CTC on that, you also are seeing scenarios where you only get it if you have income because it's a tax credit it. And you also need to make a certain amount, at least at minimum more than 2,500 a year before you even start accruing the CTC. That combination means that you're mixing again family policy with worker policy. That's not necessarily a bad thing. We care about families, we care about work. But it means that we're mixing our goals once again. We're thinking about multiple different things all at once and trying to take one swing at all of our problems. And this creates this huge number of overlapping policies, programs, interests. And then when we start saying, well, actually we need to shift a little bit to the left or shift a little bit to the right. Becomes this massive interconnected problem of how do we think about benefits, how do we think about costs? All of it just gets more and more complicated. So if I'm going to say something like king for a day, first and foremost, you want to clean and clarify what's worker policy and what's family policy, doing more to try and distinguish between the two and say, I really care about low income adults having enough to support a kid. That's child policy, bicycle. I really care about making sure that there is a surplus of labor demand in the market. Focus on that, target it, draft legislation around that, and trust that you'll have other swings at other issue areas and try and keep them distinct enough that we're not constantly stealing from each other as we think about policy design and implementation.
- [67:28]
B
I'm just, I loved your face when I said, that's not expensive. You're like, just horror, absolute horror. I'm like, and this is why, this is why you are the one with the PhD. I'm like, 70 billion. We can swing that in our sleep. You know how much a drone costs for context.
- [67:47]
A
All right, I exist in a world where every single day I try and like, here's a great idea, I then have to think, there's going to be someone across the aisle from me saying, why would I spend a single more dollar? So yes, when we think about taking big swings at ways to make people's lives better, you got to come in saying, either what are the pay fors? Or more specifically, what is the long run benefits from this stuff.
- [68:08]
B
I know that you all have essentially budgeted out, estimated what this type of wage subsidy proposal would cost. And earlier in this conversation, I mentioned some numbers that had been assigned to job creation programs in the past, and we were talking hundreds of thousands of dollars. What do you anticipate? The wage subsidy.
- [68:31]
A
So under our proposal for a worker today who earned $8 an hour, the wage subsidy cost to a taxpayer would be, for if they were full time workers, $12,800 per year. And if they were making $12 an hour through their employer, that cost would fall to $6,400 per year. So we're talking about massively less than when we're thinking about the comparison of like tariffs or Buy American policies in terms of the cost estimate for a full time worker in a job. And that's because most of this is happening on supply. We already have a firm interested in Hiring someone and we already have a worker interested in working and all we're doing is just covering the gap between the two. And that massively reduced the cost of these types of things, rather than trying to fight to make something happen that the world or that the economy has already tried to shift away from.
- [69:18]
B
Thank you for that.
- [69:19]
A
Yeah.
- [69:19]
B
So I read your paper's comments and usually these are a cesspool.
- [69:25]
A
Fun.
- [69:26]
B
But there were a couple trends in the feedback that I thought, okay, let me. I actually do want to ask Ben directly what he thinks about this. One was fraud. People are really scared about fraud. Do you think that that's a reasonable concern, all things considered?
- [69:46]
A
I think we should always be worried about how people can take advantage of a program for bad intent. I think it's very reasonable to say, if we are spending money to try and make something good happen, do we believe something good is going to happen? Are we trusting that everyone is a good actor? So I think it's completely reasonably worried about fraud. Fraud. I don't think this is a scenario where it's going to be a primary driver of concern. And I think we try and solve it in a couple of ways. The most concerning one would be simply if we just said we will cover any of the gap between an employer offered wage and a target wage, whether they were offering a dollar or 20. If that was the case, then sure, there would be plenty of people saying, I have 20 workers, come and give me money regardless if they actually showed up or saying all of These workers worked 40 hours a week. Even if someone only showed up once and punched a clock and ran away way, I think it's reasonable to be worried about that. But because we use a base wage requiring that at least some portion. In our case, we use the federal minimum wage today as the base wage. Some portion of that has to be covered by an employer and that portion is structurally and systematically less than the amount the wage subsidy is. There's zero chance for an employer who never sees the payment directly. It goes to the employee's paycheck to simply capture back any of that. They have some financial cost, some. Some skin in the game that prevents them from trying to make fake workers. For example. The other side of it is simply, well, if there's going to be fake jobs somewhere, maybe someone's going to say they'll do a little bit of work, they'll do a little bit. Not since there's cost to employers, there's going to still be an incentive to say, well, are you actually returning work? Maybe they're hiring people who might be, just on the margin, worthwhile. Maybe there's going to be a little bit more money going out than we would have previously wanted at some jobs that maybe the social planner isn't super stoked about. Maybe someone's being hired just to sit down and throw something at someone. I don't know. That's kind of fraudy, but, like, that's very unlikely kind of fraud. It's kind of there like if someone's being paid a wage. Yeah, go ahead.
- [71:40]
B
So, like, there would never be a situation based on the way that it's designed where the subsidy is higher than the base wage that is being paid.
- [71:50]
A
Nope, we did the algebra.
- [71:52]
B
If I'm putting on my fraudster hat, I'm going, all right, well, maybe I'll hire my fake worker, pay him 725, let the government cover the rest, and then I'll tell them, you don't have to do anything. But just by, like, participating in this scheme, we can, you know, I'll give you some of the money overall.
- [72:11]
A
So in that case, for the person, if 725 is the base wage, the most that they're going to be able to get is not going to cover the full 725. So if they said, you come here, work for me, I will pay you 725. The government's going to cover the difference with the wage subsidy, and then you give me the entirety of the check back. That entirety of the check does not cover the full cost of the 725 per hour. They'll still be losing money on that transaction as a result. Now there's a world where they're trying to say, like, oh, come work for me specifically, but also you have to pay me from the check that you're getting some amount. Maybe there'll be some types of coercion, maybe power will be playing into it to try and induce more wage theft, which is a prominent of its own. But the reality is that those types of things do already occur in the labor market, and we have regulations set up to pursue those exact types of problems. So I would really prefer someone who's really concerned about the fraud in that variety to also invest the time and energy into trying to enforce those wage regulations we already impose. We have that problem already. And I would rather have the people who are currently being stolen from have more job opportunities so they can leave those bad managers.
- [73:16]
B
The other trend was inflation. People worried about inflation. I was thinking about an example that I had read about in the Past in which in situations where minimum wages were raised locally that landlords would respond to that by raising rents because typically low wage workers are renters. And so they got into this weird cycle where like the landlords were the ones that ended up actually like absorbing or capturing those gains rather than the workers. I'm sure you've thought about this. So I'm, I am curious about the either inflation piece of it or essentially like, is there a world wherein if we are wanting to raise these wages because we want it to make it easier for people to afford their subsistence goods, we're talking housing, energy, food, childcare, et cetera, that maybe it would just be more efficient or effective to find ways to provide those services more cheaply rather than trying to inject more money into the demand side for goods that are still kind of being sold.
- [74:22]
A
So number one, we absolutely should be doing more to support supply side infusions. We want to have more housing, or at least I would like to say we should have more housing, particularly in the places where people need it, so that we can help control or at least limit the growth in the housing cost in those places where we have such huge centers of employment. Same thing for energy and everything else on that example. Exact front. On the other side of it, though, for the demand side, there's lots of good reasons to want to have more of the types of things people are buying, but also they need to have the capacity to buy those things. So cash is a hugely flexible thing. We live in a market where cash helps mediate transactions and that's a good thing. It's nice that I can say I personally need more child care, so I would like to spend the new money I'm getting on child care. And you might personally want to spend it more on housing because you don't have a kid and therefore you can do that. And cash allows that flexible transaction across multiple different actors. And inducing the scenario where more people have more money and they can spend that money on the things that they care about and let the price mechanism work itself out accordingly is how markets are able to make efficient worlds work when people have different interests, different preferences in different scenarios. That's not to say that it's not still a worthwhile goal to try and say, well, we need more childcare. How do we allow for more workers in that industry? It's also nice to be able to say there's housing available of high quality in the places people want to live and where jobs are, and it's worth us pursuing that. I don't think any of those concerns are reasons for us to say I should be afraid of boosting the incomes of low income workers. I think that's a roundabout way of saying I actually shouldn't care about getting them money because the money's just going to go to some landlord somewhere else and, like, might as well just not give them the money money to begin with. That feels kind of like a cruel way of avoiding dealing with supply side constraints simply because you're afraid of demand sized induced inflation.
- [76:10]
B
I appreciate that and thank you for being here today. That was really fun.
- [76:13]
A
Thank you for having me. Really, it was great. I was terrified of where it might go simply because I know that you're approaching the end of the podcast for Or. I won't say it. I won't say the slight pause.
- [76:24]
B
You're like, maybe she's gonna really just like, let the wheels come off this thing.
- [76:28]
A
And I thought there was a real chance that I would show up and it would just be, you know what, we're just having a day. But I'm glad because it was a great day. It was great. This was a fantastic conversation and I'm really glad that you had the space to kind of host me here and we could talk about this.
- [76:42]
B
Oh, thank you. Gosh, now I'm curious, like, what points of friction you thought we were going to get into and how brave of you to still come.
- [76:51]
A
I thought we were going to do a UBI discourse. I thought that there was going to be a question about markets to begin.
- [76:57]
B
With because you think I come down on the side of universal basic income as something that we should have more.
- [77:02]
A
The idea of, like, thinking about how UBI can be advantageous in dealing with these types of shocks.
- [77:07]
B
I actually am not a UBI fan.
- [77:09]
A
Oh, really? Okay, then I was mistaken.
- [77:12]
B
No, I do think universal basic services, though. I would die to see a world where, like, we are able to achieve universal basic services for health care, education, childcare. That's like my pipe dream is like an economy that can use its wealth for that. I worry about UBI because I'm like, I think that this is just going to further some of the problems that we already have. I don't really see it solving. I'll say it this way, when I learned that Milton Friedman liked ubi, that to me was like. And that confirmed that my skepticisms were valid.
- [77:43]
A
Oh, that's a hilarious reason to start shifting against ubi. My lesson on most of it is always that we should just take every option seriously and really evaluate it in the context that it's in. I think there are tons of great options around and we should be really self critical and self reflecting on what are kind of our gut impulses of why do I want one versus another? Is it any different? And then try it every single time.
- [78:05]
B
Vibes baby.
- [78:06]
A
Just vibes.
- [78:06]
B
I want the union because of the vibes.
- [78:09]
A
I still have great vibes from when I was in my union back in grad school. I am very much a fan of the vibes on those fronts. So for me it's always just about what's the problem I'm facing right now and in this exact setting and what's the the best solution I can come up with. And that's not necessarily not a bundle of multiple things that are all distinctly targeting different aspects of power.
- [78:36]
B
That is all for this week. I'll see you next week. Next week's interview is a conversation with Rebecca of Yield and Spread, which you may remember if you listen to a recent and Rich Girl roundup. We were talking about ways that the FI community is building philanthropy and redistribution and giving into really robust financial plans. So I'm very excited for that conversation. Our show is a production of Morning Brew. This episode was produced by me, Katie Gadi Tasan with audio engineering and sound design from Nick Torres. Devin Emery is president of Morning Brewing.
- [79:18]
A
And Doug, here we have the Limu Emu in its natural habitat, helping people customize their car insurance and save hundreds with Liberty Mutual. Fascinating. It's accompanied by his natural ally, Doug. Limu is that guy with the binoculars watching us. Cut the camera. They see us. Only pay for what you need@libertymutual.com Savings Ferry unwritten by Liberty Mutual Insurance Company and affiliates. Excludes Massachusetts.