Remember Suresh Naidu, the professor of economics and international and public affairs at Columbia University? If you haven't heard our first interview with him, search it and thank us later. Anyway, he's back, and he's badder than ever.
This time, he's talkin' past, present, and future regarding the topic of minimum wage. Put your thinking caps on and turn up your earbuds, this one is special.
PODCAST TRANSCRIPTION sponsored by:
So for a long time, it used to be thought that like minimum wage workers, they're just like teenagers in middle-class homes. Yeah. And you know, a big chunk of them were in like the sixties and seventies, but increasingly, partly, you know, since Reagan for all the reasons you talked about an increasing share of minimum wage workers are like older workers, workers with families, that you know, are trying to live on a minimum wage job. Hide your kids! Lock the doors! You're listening to HR’s most dangerous podcast. Chad Sowash and Joel Cheeseman are here to punch the recruiting industry, right where it hurts! Complete with breaking news, brash opinion and loads of snark, buckle up boys and girls, it's time for the Chad and Cheese podcast.
Aw. Yeah. What's up everybody. This is your favorite podcast. The Chad and Cheese podcast. I'm your cohost? Joel Cheeseman is always joined by my cohost at arms Chad Sowash and today he's back. He's bad. He's out for blood. It's part two of our interview with Suresh Naidu. It's Chad's biggest crush, Man. Crush it all. Suresh. Welcome back to the show. You have a PhD, but I question your intelligence coming back on the show. How you been man?
Suresh (1m 19s):
Totally legitimate to question my intelligence. So, yeah, I'm great. How are you? I'm fine.
Chad (1m 25s):
Excellent dude. Excellent dude. So give us a little, Joel gave us a, you have a PhD, but gives us again, listeners, a little bit of background about you and then we're going to jump into today's topic.
Suresh (1m 36s):
Yeah. So I'm, I'm an economist. I, my area of specialty is economic history and particularly of, of labor markets. So I've studied everything from American slavery to unions in the 20th century to the minimum wage and did the gig economy today. So I'm kind of a Jack of all trades as they come in economics. Yeah.
Joel (1m 55s):
With that background, you're the life of every party that you attend. Right.
Suresh (1m 59s):
You'd be surprised how much that's actually true.
Chad (2m 3s):
Get Suresh over here. Tell us that story short. I, so that's what we're going to do today. Today. We're going to have like a party discussion and it's going to be around minimum wage. I mean, it's in the news today, it's in the social discussion. Everybody's fighting about it, but you have the history behind this
Joel (2m 19s):
A unique perspective.
Chad (2m 20s):
Yes. And, and I'd love to be able to go back from a history standpoint and then just kind of like ramp into today and have that discussion. But I think it's important that, you know, we all better understand and we're more educated around the topics we're actually discussing. So therefore that's why we bring smart dudes on like, like you to talk about that. So how did this whole thing start? Was it, was it FDR? Was it before that.
Suresh (2m 45s):
In fact in the, you know, before the new deal, for example, like most labor law was the domain of state and local government. And so different States had different minimum wages. So that sort of starts, I think in New York state law in 1905, there's a, there's a background. So the Supreme court during this early 20th century period was super hostile to labor legislation. So, you know, there's this famous case Lochner versus New York where like New York tried to pass a statute, that limited, that was like a maximum hours law. Like, you know, that that bakers can work too many hours and the Supreme Court was like, this is an unconscionable restriction on freedom of contract and struck it down.
Suresh (3m 26s):
What that then led reformers of the day push for is like minimum wages for women and children, especially, and so the first minimum wage is like in Massachusetts in 1912. And then, you know, you kind of get a whole bunch of other minimum wages, always sort of restricted to women and children. The exception might be like Oklahoma in 1937, but also all of them exempting, almost all of them, exempting agricultural workers and domestic workers for, you know, which has sort of happened to exempt also a large fraction of the African-American population from coverage by the minimum wage. It was probably not an accident, you know, and there's like state level laws and, you know, in carving out exemptions for, for domestic and agricultural labor.
Suresh (4m 14s):
But then in 1937, the Supreme court determined that all of these are unconstitutional and basically strikes down all of the minimum wage laws. It's a 1936 or 1937. And then they like have another case where they find that it is constitutional. And then that basically leads FDR to put a federal minimum wage and the federal labor standards act of 1938. And that's the first federal minimum wage. It also has an exemption for agricultural and domestic work, but it's like kind of the, for the first time that you have like a blanket minimum wage that's binding in Mississippi the same way it's binding in like New Hampshire.
Chad (4m 53s):
So why did they put that in though? So what was the, what was the reason for that? Was it because poverty was running rampant? Why did the government feel like they had to step in from a federal standpoint and actually override everything the States were actually putting in place?
Suresh (5m 10s):
Well, so there was like an argument of the time, that it was the term was sweated labor. So it was basically like sweat shops in the U S and that people are like, we need to eliminate sweatshop. And it's a moral imperative to like end quote unquote sweated, labor, and Roosevelt was talking about the need to end starvation wages. So there was a real, like moral case for the minimum wage. And that's kind of always been there for, in the background of the minimum wage. It's not just like a, it raises wages for low income workers. There's also a real sort of sense in which it like the dignity of a minimum wage is part of like what, you know, you're trying to establish as like a democratic polity is like, need to have it, the people that work like can actually have a decent standard of living as a result of that.
Chad (5m 56s):
They can survive.
Suresh (5m 57s):
They can survive.
Chad (5m 58s):
That's the first time I've ever heard starvation wages, but that in itself, I mean, that's pretty damned impactful. Was that like what they use today, we use quote/unquote "living wage," which is kind of like a softened version of that. Is that was that the term that they were actually using starvation wages?
Suresh (6m 17s):
They talked about starvation wages, like reformers were like, we need to end starvation wages. And like, you know, there's like a quote from like the department of labor, "certain basic standards of adequacy, or generally recognized as inherent in the concept of a minimum wage based on the cost of living." So it's just like, you know, the government was talking about basic standards of living as a part of the reason to have a minimum wage. And then I think, like in the context of the recovery from the depression, there was also kind of a Keynesian Agra demand point that, Hey, maybe by raising wages of workers that will raise demand for products, and that will kind of have a stimulative effect on the economy. And that was just kind of in the air in the 1930s.
Joel (6m 57s):
Was this something that sort of appealed to both sides of the political spectrum, or was there a debate back then of, okay, well, yeah, if the Dems pass, you know, more money, that means more votes, so we gotta be against it. What did politics sort of come into play or was it an overall broad sense of, we need to help people.
Suresh (7m 15s):
It was politics got in the way, but not Republican versus Democrat. It was North versus South. And so basically both Northern Republicans and Northern Democrats were like pro a higher minimum wage while, you know, most of the South is Democrat at this point, remember, African-Americans, can't vote. And, they're like very, very much opposed. And so you just think that even though agriculture is exempt, like there's a whole bunch of low wage textile industries, for example, in North Carolina and South Carolina that are paying basically really, really low wages and know that they're going to get hammered by the minimum wage.
Joel (7m 51s):
You mentioned children. And I also think about sort of indentured servitude, right? Like the little towns that, dug coal and, you know, you bought the same stuff from the company that paid you money. And it was just sort of this, you know, bubble that you lived in. Did minimum wage laws pass before child labor laws and indentured servitude issues?
Suresh (8m 10s):
Yeah. Yeah. So the nature servitude stuff in the U S and in the UK just like ends way before we have minimum wages. We've gotten rid of it indentures, in the U S before independence with the exception of the US blacks in the U S office. Right. If you're white, you're not indentured worker, in the US. So, and then the minimum wage is sort of coming. It's like a beginning of the 20th century kind of thing. When you have this, you should just think of like, like at the beginning of the 20th century, it's been like two generations of just industrialization happening in the US after the civil war. It's just like big factories going up, used to think of like, Upton Sinclair's writing, like the jungle, a period where like, people are like really grappling with the consequences of industrializing the economy at a breakneck speed.
Joel (8m 58s):
And you had similar today, you had very wealthy companies, right. In that period, it was, you know, trains and steel and things like that. But we had a similar situation when these laws were passed. Maybe we look at today with a different lens.
Suresh (9m 13s):
Yeah. So I think like, it is similar and it's actually similar a couple of different ways. So like actually the Northern big businesses that are basically the Northern backing, the Northern Republicans, they're in favor of a federal minimum wage, in the 1930s. And even, so even before in the 1910s, they're important for these minimum wages because they're high wage employers. And that's like the way, I don't know if you guys have seen this, like Amazon's running like, basically full on ads in the New York Times talking about how it pays a $15 minimum wage and supports raising the federal minimum wage.
Joel (9m 48s):
Yeah. They just want to allow their workers to take a bathroom breaks other than that. Yeah.
Suresh (9m 52s):
Yeah. But you'll get $50 an hour, but they're also like busting a union in Bessemer, Alabama at the, you know, while they're like taking out ads, being like, Oh yes, we should raise the wage. So I think that's telling it's, they're willing to pay high wage. They're not actually willing to like, recognize any kind of, any kind of unions. And that's also similar, I think in the late 19th century, early 20th century, you have like, you know, Frick and Carnegie and Rockefeller, and they're like, you know, they're reformed, they're open to reform. They're open to like these minimum wages, because they're not actually that dependent on child labor or low wage, sweat, sweat shops. So they're like, yes, sure. Take, you know, and it's more like their competition that's that might actually depend on that, much more than them.
Chad (10m 36s):
Unions actually start to come in to play, to be able to drive wages, because again, collective bargaining, all that other fun stuff. I mean, there's kind of like this rolling need to focus on the employee, the actual people versus the corporation. Does that come in? You know,
Suresh (10m 55s):
That's in the 1930s, really unions are part of a broadly part of like the progressive Alliance is pushing for minimum wages in the tens and twenties, but they're small. There's not a lot of them. And the way they really like take off is in the 1930s with the Wagner Act. And it's part of the same moment, right? So the Wagner Act is passed in 1936, Supreme Court upholds it, 1937 Supreme Court and it's all because like result was a basically threatening to pack the court. And so you all of a sudden got a very compliant Supreme Court that was like, yes. Okay. Maybe, you know, maybe, the federal minimum wage is constitutional. Fine. And so in that sort of like, pitch year of 1937, the Supreme Court basically allows big chunks of Roosevelt's policy agenda to be passed.
Suresh (11m 39s):
And so you get this huge upswing in unions and you're getting an increase in the minimum wage. There's an interesting sort of, there was some unions, I wouldn't say all like some unions were like, no, no, no, we can't have the federal government setting wages, that's our business. We set wages. You can't take that away from us. And sort of like reminiscent about how unions were like, kind of mixed on Obamacare and Medicare-For-All, because they're like, no, we negotiate fabulous healthcare benefits for our members. You can't take that away from us. That's our domain.
Chad (12m 8s):
That's our business. Yeah. We collect dues and that's an added value.
Suresh (12m 16s):
But, you know, back then it was like, wages, but I think like, particularly the CIO type unions just kind of got that, like the minimum wage was good for like they were going after high wage firms and the biggest threat to their high wage firms was like low wage firms that could enter and take away the business from the unionized shops. So minimum wage, just like damps down the threat of the unionized, the competition facing unionized firms.
Joel (12m 43s):
Yeah. So we get out of the thirties and into the forties and fifties. And how do things change?
Suresh (12m 48s):
Yeah. I mean, it's funny. I just, this morning on Twitter, I posted a graph from the 1940s just showing like the CEO to average worker pay and just like it collapses between 1941 and 1945. It's just like CEO pay gets crushed.
Chad (13m 2s):
What was it?
Suresh (13m 2s):
It went from like 60 times to like 30 times.
Chad (13m 5s):
So 60 times, and then today we're talking about ...
Suresh (13m 9s):
So 400 times or something to just imagine driving up average worker wages so much so fast and driving down CEO pay so much so fast that you cut the ratio by two, in like three years. What a radical transformation in the economy that was.
Joel (13m 26s):
Was that simply a reaction to we're paying workers more so there's less money on the bottom line to pay the executives.
Suresh (13m 34s):
Yep. And there's taxes and salary caps and union. Like basically if you're producing for the war, you basically have to recognize a union and they're going to ask for higher wages. And so, like, I would say like the economy is kind of firing on all cylinders in a way to reduce inequality. And it's difficult to know exactly which margin is doing the most work. I think unions are doing a big chunk of it. Taxes are doing a big chunk of it. And then just the fact that like, you know, 6% of the prime age workforce is abroad.
Chad (13m 60s):
But this is a time of prosperity. Am I wrong here?
Suresh (14m 3s):
It's difficult to say that World War II was a time of prosperity because people are eating canned rations. And it's just like, you know, like a lot of the economy is basically in high pressure.
Chad (14m 13s):
Or after, after World War II is definitely a period of prosperity. So like the 30 years after World War II, or, you know, everyone knows that was kind of like the golden And the same rules we're applying? Am I correct?
Suresh (14m 23s):
Well, that's interesting. No, cause they, they actually took away the rules.
Chad (14m 27s):
Suresh (14m 27s):
A lot of the rules like actually get changed, but a lot of the effects persist. And I think that's really interesting. It's like even though tax rates go up, the tax rates stay high, until Kennedy, but you know, unions are no longer as protected under, after World War II as they were before to the Taft-Hartley and things like that. But they stick around and they don't like immediately disappear and that has important wage boosting forces and just the economy is growing really quickly. Like we're exporting a lot to Europe. There's a whole rash of like, and we're innovating. I mean, I should also tell you this, like, because of probably the cold war, the US had just spending a ton of money on like research and development on universities.
Suresh (15m 9s):
People are going to like GI bill is just sending a bunch of people into school. So just like a lot of innovation and like new technologies just showing up all over the place. And I think that's an under-appreciated part of the post-war boom, is that we just plowed a ton of money into the university system because we were competing with the Russians.
Chad (15m 27s):
Yeah. Well that was to an extent a social program.
Suresh (15m 31s):
Yeah. It wound up having lots of beneficial spillovers to the both workers and companies.
Chad (15m 35s):
Yeah. So we then fast forwarding into like the seventies and then the, obviously, you know, we have some dips there in the economy. Where's really the big sticking point where we find ourselves in a very different landscape today.
Suresh (15m 53s):
Let's get to Reagan. Yeah. So, well the federal minimum wage peaks in 1968. Okay. And then it like, has this like a jigsaw jigsaw pattern, you know, it's like, because it's not indexed to inflation, we should come back and talk to that. It's like interesting story about indexation actually. So it says not indexed to inflation. So it's like real value is just deteriorating all the time. And then it has to get like re-upped to like keep pace with inflation. It gets re-upped, but it's never like keeping pace with inflation and by activity, since 1968. So it gets increased. Generally the Democrats tend to tend to favor raising the minimum wage and when they control the government, they tend to raise the federal minimum wage. One important thing that does happen in the sixties though, is that a lot of these exemptions for various sectors for domestic work and agricultural labor are taken away.
Suresh (16m 41s):
And so a lot more like African-Americans get covered by the minimum wage. And there's a recent paper by <inaudible> that kind of shows how that actually had a really big effect on converging the black white wage gap was just like using the minimum wage to raise the wages at the bottom where a lot of black workers are. And that just like pulls up a whole bunch of workers that were like locked out of the kind of higher wage sectors that whites were dominated in. And just really, you know, as much as civil rights, it's like just covering black workers with the minimum wage, just did a made a huge dent in racial inequality without any job loss.
Chad (17m 22s):
Was that part of the civil rights legislation?
Suresh (17m 24s):
No, no. It's actually just totally a federal that just totally something about like it's a change in the federal labor standards act.
Chad (17m 31s):
It's amazing when you start paying people equitably, how you can lift them out of poverty.
Suresh (17m 37s):
One of the kind of really interesting things about the economics research on the sort of same time, is that partly because the federal minimum wage was deteriorating and States, and later cities, began passing their own minimum wages that were higher than the federal minimum wage. And so what this gave starting in the nineties was just, again, gave the economist a laboratory for we're like, okay, now we can finally kind of run something closer to like a controlled experiment where you can sort of see when, when a state raises the minimum wage, like there's a famous New Jersey - Pennsylvania study that looks like at fast food restaurants on two sides of the Susquehanna river. What happens when New Jersey raised its minimum wage and Pennsylvania didn't what happened to employment of those restaurants and found this found that actually implement, went up more in New Jersey, fast food restaurants, despite this increase in the minimum wage.
Suresh (18m 28s):
That's one of the big impetuses to this interest in economics and monopsony is that, that's one of the, kind of, monopsony this idea with the employers that wages and are trying to like set wages so that they can save on payroll while, tolerating a bit of turnover is one of the kind of explanations in economics that can generate that kind of, that kind of result and so we've got a whole lot of lists and then that just kept going. So we had like California increasing minimum wage. Then we have like federal changes in the minimum wage that then wound up only affecting some States and not other States. So we were just finally getting like a chunk of variation and workers that were affected by the minimum wage versus ones.
Chad (19m 7s):
That weren't quick question though. I mean, so during the Reagan times, we were pitched trickle down economics, which was supposed to feed more money and trickle down to, to everyone that obviously did not work. And during that timeframe, we really haven't raised the minimum wage to pass starvation wages. So I guess, you know, the big question around just the economic landscape of today, as we have more money going to CEOs, boards, then again, 3000 times that of, of a quote/unquote "essential worker." So it is the force of a minimum wage to $15 an hour, which is equal to about $30,000 a year, for God's sakes.
Chad (19m 54s):
Is that the only way that we can really get our citizens out of poverty because we're in bad state right now, especially after COVID
Suresh (20m 3s):
Yeah. So the real place, the minimum wage, like makes a dent, in inequality is between like the average worker and low-income workers. So really like crushes, it's like really a tool for like pulling up the bottom, not pulling down the top.
Chad (20m 17s):
Suresh (20m 17s):
So if you're real concerned of CEO pay, that's probably not gonna be fixed by like raising the minimum wage. You probably are going to need something like, because not necessarily like that many workers get covered by the minimum wage where it currently stands and so to really put a dent in the top incomes, you would need to like drive up wages for a lot of workers.
Chad (20m 37s):
Suresh (20m 38s):
And the minimum wage is probably not the best tool for doing that.
Chad (20m 40s):
But it does take the bottom half, really the people that are in starvation slash not in living wage territory, it brings them up to at least where they're not starvation wages.
Suresh (20m 51s):
Yeah. And, and yeah, so for a long time, it used to be thought that like minimum wage workers were just like teenagers in middle-class homes. And, you know, a big chunk of them were in like the sixties and seventies, but increasingly, partly, you know, since we're, again, for all the reasons, you talked about. An increasing share of minimum wage workers are like older workers, workers with families, that, you know, are trying to like live on a minimum wage job.
Chad (21m 18s):
Suresh (21m 19s):
And it's really, really hard on the federal minimum wage.
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Suresh (22m 49s):
In fact, there's a paper that sort of shows that like that when you raise the federal minimum wage, you actually get workers leaving, like they use less food stamps, they use less of the earned income tax credit. So you kind of get like a budget kick-back to the government from raising the minimum wage because you lower a dependence on the social safety net.
Joel (23m 8s):
So I was going to say historically, in times of raising the minimum wage or introducing a minimum wage, did the economy ever tank because of that, because I think that's a common argument against raising the minimum wage is that unemployment is going to rise, companies that go out of business. Did any of that happen on a grand scale when, when these policies were introduced?
Suresh (23m 26s):
No. Well, I mean like, you know, one of the cleanest experiments we have is actually the effect of the federal minimum wage in 1938. And what you do see is like, you know, the minimum wage did have a big effect in the U S South. And it did looks like it killed a lot of jobs, but it's not clear that it actually like raised unemployment. Like those jobs have actually just reappeared at the new minimum wage. And so like, you know, we didn't see like a giant crisis of black unemployment in the South with the increase in the minimum wage there, which was hitting low wage workers, low wage black and white workers. So, I mean, partly it's like also, would we pass a minimum wage? If it was like anywhere in the realm of like, actually going to crater the economy, like, if it was so obvious that it was going to like destroy the economy wouldn't, kind of, people just understand that.
Suresh (24m 14s):
Yes. So the fact that it's not that we have a debate and an argument around it, suggests that it's not obvious that it destroys the economy.
Chad (24m 23s):
Well, it feels like, it feels like these are conversations that are engineered by corporate America to try to scare the shit out of everybody. Overall, it's not going to crater the economy. It's actually going to raise people out of poverty. I guess, I don't understand why other than sheer greed, we're not looking at, what it costs to live in cities and starting to set living wages for everyone across the nation. Why can't we be more transparent? I don't understand from an economic standpoint and from a political standpoint, it seems like it makes sense, especially to be able to serve your constituents.
Suresh (25m 3s):
Well, yeah, so the minimum wage is hugely popular with voters. I mean, Florida said, you know, goes for Trump and is completely red and yet passed the $15 minimum wage, in the last election.
Chad (25m 14s):
Suresh (25m 14s):
So like, you know, Republicans, even Republicans love minimum wages. And I think it's, you know, actually it's really interesting, like in the UK, the Tories have really been big proponents of minimum wage increases. So they just kind of owned it as like a policy that they're into. And so I think it's actually not obviously, remember this thing about Amazon being in favor of raising minimum wage, Walmart, and Target, and a bunch of other companies actually have their own internal voluntary minimum wages where they just don't, their starting wages are uniform across the country. Walmart starting wage is like 11 bucks everywhere from Mississippi to Seattle.
Suresh (25m 54s):
And so I think it's more ideology than it is greed, because there are like businesses that like the minimum wage is like not a big deal. And I think it's more that there's just this like hard libertarian and a small business, small business probably does get hurt by the minimum wage.
Joel (26m 11s):
Well, and the counter argument would be if it's so popular, why hasn't it been done on a federal level in over a decade? And to me, is it a market situation where States are competing for workers or city? I think Seattle recently in the last five years or so, increased it to a pretty, a nice wage. Are cities competing for workers? Does, how much does that come into play?
Suresh (26m 35s):
I don't think so. I think, I don't think cities are like, one thing you see is that when you have like cities that sit across the state borders from each other, and one state raises the minimum wage, you see wages go up in that, you know, on one side of the border, but they stay up like relative to the other side of the border for like five years after, so it's like there's maybe four years after. Like, so there's like not a sense in which, you know, even to places that are right next to each other, when wages go up in the other place, the other city across the way feels the need to raise its wages to compete. So that, I just don't think that happens very much.
Joel (27m 10s):
And people don't move across the border to work in the other state.
Suresh (27m 14s):
And firms don't like reopen their businesses at the other side, you know, they don't just change their mailing address or something. So, I think it's interesting that I don't think cities are competing for workers. I think it's much more like, it's much more of a reflection of what's active, much more of the economic growth in America is happening in cities. And so.
Joel (27m 35s):
Suresh (27m 37s):
And so like housing prices are going up and the cost of living is going up disproportionately tasks for low wage workers in cities and a responsive cities to do that is to raise wages.
Chad (27m 50s):
The last question for me,Suresh, and this is, I think more of an opinion. I don't know. Maybe hopefully you've got some evidence based to answer this, that'd be awesome. But Kroger recently closed four locations because they were pretty much forced to pay their essential workers, $4 more per hour. And so Kroger, once again, they're our whipping boy for now. Their CEO makes, I think anywhere from $12 to $14 million a year, and the organization is like over $120 billion organization. How does a minimum wage in boosting the minimum wage, get organizations like that to start being more fiscally responsible for their employees at the bottom, as much as they are to the ones at the top?
Suresh (28m 43s):