Higher minimum wages are creating more jobs (with Michael Reich)

Episode Summary

Executive Summary: The episode discusses a new Berkeley study on large $15 minimum wage increases, arguing they boosted employment rather than reducing it. Host Nick Hanauer, David Goldstein, and economist Michael Reich frame the findings as a major challenge to traditional introductory economics and evidence that higher wages can increase demand, improve labor market efficiency, and support broader economic growth.

Main Topics: The $15 minimum wage study (Priority: 5/5): Michael Reich’s research is presented as the first major study of a $15 minimum wage and finds large, statistically significant positive employment effects, especially for fast food workers and teens. Challenging conventional economics (Priority: 5/5): The discussion criticizes the standard textbook model that predicts job losses when wages rise, arguing that real-world evidence does not support the simplistic supply-and-demand story. Employer power and monopsony (Priority: 5/5): Reich explains that employers often have more market power than workers, and that monopsony dynamics can allow higher wages to increase both pay and employment. Methodology and causal evidence (Priority: 4/5): The episode emphasizes stronger empirical methods in economics and contrasts credible causal identification with older model-driven approaches that could produce almost any conclusion. Policy implications for minimum wage debates (Priority: 5/5): The hosts argue the question is no longer whether to raise the minimum wage, but how high it can safely go, with implications for living standards and labor-market design. Broader economic redistribution and efficiency (Priority: 4/5): The conversation links wage increases to stronger consumer demand, better business performance, reduced reliance on low-road business models, and possible reallocation toward more productive firms.

Key Arguments: Large minimum wage increases can raise employment, not just wages, when analyzed with credible causal methods. The relationship between higher wages and more jobs is driven by increased worker purchasing power and stronger business demand. The standard textbook minimum-wage model is too simplistic because it ignores employer power and labor-market frictions. Empirical economics has improved substantially; modern studies rely more on data and causal identification than on pure theory. If minimum wages rise substantially, some low-wage, low-productivity firms may shrink or exit, while more productive firms and sectors expand. Political and moral concerns about fairness matter, and public support for higher wages is stronger than many economists assumed. Higher wages can make labor markets more efficient by lowering hiring and turnover costs and reducing vacancies.

Data Points: Study coverage period: 2013/2014 to 2022 - Reich says minimum wages in the studied areas rose over this period and the analysis stops in 2022. Employment effect: Large, positive, statistically significant - Reich says $15 minimum wages had positive effects on total jobs. Affected worker groups: Fast food workers and teens - These groups showed especially strong positive employment effects. Minimum wage increase size: $15 minimum wage - Presented as a much larger increase than the incremental hikes studied in earlier research. Price willingness for fairness: A couple of cents to 50 cents more - Reich cites polling showing consumers would pay more for better labor conditions. Stock buybacks: About $1 trillion last year - Hanauer argues buybacks absorb surplus that could instead support wages. Potential economic surplus: About $2 trillion - Hanauer estimates hidden surplus from profits, buybacks, and executive pay across the economy. Equivalent per worker: Nearly $20,000 more per worker per year - Hanauer translates the estimated surplus into worker income terms. Federal minimum wage: $7.25 an hour - Used as a comparison point for low wages in childcare and labor-force participation. Potential alternative wage level: $18 an hour - Hanauer suggests some workers would return to the labor force at this pay level.

Pivotal Quotes: "The question is not, should we raise the minimum wage? The question is, how high should we raise it?" — Nick Hanauer: Opening framing of the episode’s central policy argument. "When workers have more money, businesses have more customers and hire more workers." — Nick Hanauer: Used to explain the demand-side logic behind higher wages. "$15 minimum wages, when we dig down deep enough, do have very large and what economists call statistically significant positive effects on the number of jobs in an economy." — Michael Reich: Reich summarizes the study’s main finding.

Implications: The episode argues that minimum wage debates should shift from job-loss fears to setting an optimal wage floor. If higher wages raise employment, policy can improve living standards, expand demand, and weaken low-road business models.