The Great Wage Stagnation

COLD OPEN

Kathryn: Because if I were to ask you what determines how much money you make, you would not say it’s the Herfindahl-Hirschman Index in my town.

Robin: I’m going to now.

Kathryn: Hello and welcome to Optimist Economy. I’m economist Kathryn Anne Edwards.

Robin: I’m editor Robin Rauzi.

Kathryn: On this show we believe the US economy can be better, and we talk about how to get there one problem and solution at a time.

Robin: This week on Optimist Economy, we’re going to talk about the problem of not earning enough money.

Kathryn: Wages!

Robin: Wages.

ANNOUNCEMENTS

Robin: At the top, we’d like to make some quick announcements. I want to thank Gail from Chicago, who is our latest big donor, and I also want to thank everybody who’s moved their recurring monthly or annual donations to optimisteconomy.com. That saves us about 10% on all the donation fees.

RETCON

Robin: On to Retcon, AKA retroactive continuity, where we reflect and add to our previous conversations. First up, we had a letter about our description of the argument that capital gains taxes are double-taxed. The letter said we described it as the individual being double-taxed, and the letter writer suggested that, in fact, it’s the company paying the tax and then the individual paying the tax that qualifies it as double taxation.

Kathryn: It’s funny, so for this argument that we don’t like, there are actually two of them. And I said one, which is that people are double-taxed on savings that have turned into investment, that have turned into income, and then taxed again. But there is also another double-tax argument, which is that companies have already been taxed through the corporate income tax, and so their shareholders don’t need to be taxed again on that income. Honestly, I don’t love either of them, but there are two. And thank you, Becky, for writing that in. I think the double income taxes on personal incomes was definitely more something that was brought up in the early 2000s, around the 2001 tax cut under the Bush administration.

Robin: So the other thing related to taxes — it was our tax reform episode — I thought that we’d done a pretty good sweep of the proposals that were out there, but Senator Bernie Sanders of Vermont came out with his own, which has been introduced to committee. It’s called the Make Billionaires Pay Their Fair Share Act. That legislation would establish a 5% annual wealth tax on billionaires. And interestingly, he’s designed this in a way so that in the first year, every household that doesn’t make at least $150,000 — every man, woman, and child — would get $3,000 directly back. And then after that, the revenue would be used to address all sorts of other social needs, including free childcare.

Kathryn: I mean, if anything, that just illustrates how much money billionaires have, that that’s how much money we could all get from it.

TERMS & CONDITIONS

Kathryn: But yeah, taxes — Robin and I could talk about it forever, but we have a really cool subject today, which is a pure labor econ subject, and that is wages. So Terms and Conditions. I have a term and condition for y’all, and it’s called monopsony.

Robin: I remember when you taught me this word.

Kathryn: Yeah. It sounds like I’m trying to say “monopoly,” but that’s not the case. A monopoly is when you sit down to play a board game with your brother and sister that drives you apart because you’re all deeply competitive. It is also when you’re trying to buy something and there’s only one seller. A monopsony is when you only have one buyer, and it applies to the labor market, in which we are all selling our labor and we only have one person to sell it to. That’s a monopsony.

Robin: There’s only one employer who’s willing to hire.

Kathryn: Yeah. And the most severe example of monopsony is there’s only one employer in town and nobody else.

Robin: It’s like you’re in a company town.

Kathryn: Yes. And the idea of monopsony is really old. It goes back to the 1930s, and a female economist named Joan Robinson. She was British, at Cambridge. Cambridge was being very much run by another economist named Alfred Marshall, who was a giant, and she wrote a book basically saying that the way he thought about the world was wrong. She called it “The Economics of Imperfect Competition.” Her central thesis, way back in 1933, was that economists view the world through the way they want markets to work — which is perfectly competitive — but in fact almost no market is perfect or even competitive. And the way that economists should view the world is through imperfection rather than perfection.

Robin: This is at Cambridge in the ’30s?

Kathryn: Yeah. Cambridge in the ’30s. The other distinction she has is she’s one of the, if not the most, cited economist without a Nobel. There was so much certainty that she was going to be awarded the Nobel Prize in 1975, the gossip was, obviously it’s because she’s a woman. And then she was a little too sympathetic to communists and Marxists and their alternatives to capitalism. So yeah, being a lefty woman doesn’t always work out for economists. Noted.

Robin: Noted.

Kathryn: But she gives us, almost a hundred years ago, the idea of imperfection and her way of looking at the world. The idea of monopsony went quiet for a really long time, and now it is in a modern renaissance where there are dozens of articles coming out every year about imperfect competition in the labor market and monopsony. We’re going to talk about it today, but I had to do a thank-you to Joan. Snaps for Joan. Everybody snaps from our podcast instead of that Nobel. Hashtag sorry, Joan.

Robin: All right. I have a term on the level of “chuffed to bits.” It’s “septel.” Septel is a portmanteau, which is when you put two words together — “separate telegram.” It means you’ve contacted someone else separately about this same issue. It’s kind of like what you used to do before you CC’d everybody on all your emails all the time.

Kathryn: Oh, in lieu of a CC, you would have septels.

Robin: Yes.

Kathryn: “I didn’t send it on the group chat. I septelled each person individually.” Okay.

Robin: Yeah. I don’t know if you use it as a verb, though.

Kathryn: You do now. I mean, we can now. Let’s hope. The future is ours for the taking, Robin.

Robin: Turning nouns into verbs. Okay.

Kathryn: Nouns-gone-verb is awesome. That’s one of my favorite things.

Robin: We’ll be right back in a second for the big pilcrow on wages.

Kathryn: Wages!

Robin: And why they haven’t gone up.

THE BIG PILCROW: WAGES

Robin: So I feel like there are these themes that we circle around on this podcast a lot, and one of them — especially this year when we’ve been talking about affordability — has been that people aren’t making enough money.

Kathryn: Yeah. Let’s talk about it head-on. Americans don’t earn enough money.

Robin: Right.

Kathryn: Do we know why? And is there anything we can do about it? Yes, and yes.

Robin: I want to just do a tiny bit of table-setting here. The Bank of America Institute, which actually looks at data from bank accounts, finds that 24% of Americans are spending 95% of their income just on necessities. So that just gives you a little bit of a sense of where we are, in terms of how many people are really definitely not earning enough money.

Kathryn: Yes. So earning enough money means we’re talking about wages, which is the money that you get from your job. And I’m told that saying “the money that you get from your job” is actually easier for you humans to understand than the way that I think about it, which is how much you get when you sell labor in the labor market. That is not the same thing as income, which is the total amount of money that flows to your household from all sources.

Robin: Okay. So are wages only hourly, or can wages be salaries so long as it’s coming from an employer?

Kathryn: Yes.

Robin: Okay. It’s all money for time.

Kathryn: Money for time. Selling it in the labor market. I just had to get that in. Money for your time. Money in the labor market. Let’s go.

Robin: Okay.

Kathryn: The reason why we’re talking about wages is because they’re not growing enough. I think what can make this clear is if I were to just take the most vanilla measure of wages in the US, which is the average wage that all Americans make in inflation-adjusted terms. So real wages. I can look at that series from about the Great Depression to the mid-1970s, and it’s a line that’s going up. Wages are growing. Every year, average wages are higher than the year before, and it’s going up at a steady pace.

Robin: Sure.

Kathryn: Then in the 1970s, something breaks our economy, to the effect that wages no longer go up every year. Instead, they flatten.

Robin: And do we know what happened?

Kathryn: The short version is that there’s a really bad recession in 1973, followed by two bad recessions in ’80 and ’81 — the double dip. In that era, there are periods of decline, periods of stagnation, periods of weak growth followed by decline again. Not only is there not agreement about what happened to wages in this period or what caused it, there’s not even agreement that this was a total era of stagnation. It is truly a renaissance of labor economics research to understand what happened with wages. But the material point for workers is that wage growth was bad. Depending on what you measure — if you’re looking at the median versus the average, if you’re looking at people at the bottom 30 versus the top 30 — real hourly earnings have hardly increased since 1975.

Robin: Right. And we talked about this when we looked at the missing $79 trillion, what we asked would have happened if those wages had kept pace with GDP growth.

Kathryn: One of the things I find most surprising about this is that if you were to adjust the composition of workers in the United States, part of the wage growth that we have seen has come from the fact that workers now have more education. Workers now are older than they were then. If you were to keep wages and kind of correct for the changes in composition — to make us look again like 1975 — there are people who’ll tell you that we have had no wage growth. We’ve had a change in composition to have more high-wage earners, but we have not actually seen the labor market generating higher wages in five decades.

Robin: We just have more college-educated people bringing down big salaries. Oh, interesting.

Kathryn: Yeah. If you have a hundred workers and 20 of them have gone to college and 80 of them have not, and in 50 years, 40 of them have gone to college, the average wage is higher, but not because people are earning more in each of their individual slots. It’s just because you have more high-earning people. So by 1985, people were looking at data and saying, we are not seeing the wage growth that we had seen for the four decades prior. This became a huge problem for Social Security, that wages did not grow. They reformed Social Security in ’83, and the pattern of wage growth that they had built Social Security reform on vanished in the years after reform had passed.

Robin: Turns out it had already vanished. They just didn’t know it.

Kathryn: They were not able to predict just how stagnant wages had become.

Robin: Did something happen?

Kathryn: A lot happened. What’s funny is that if you go from 1985 to 2025, we have rotated through major explanatory candidates for wage stagnation. And the undercurrent to all of this is that you have lots of conservative economists who will tell you actually wages haven’t stagnated. There is a real measurement data fight to say, “Wages are fine. Income is fine. We’re so much richer. You’re looking at it the wrong way. Wages are great.” I don’t think that. So that’s why I’m not going to give it so much airtime.

Robin: We talked a little bit about that in the piece about the $140,000 poverty line, and the conservative economists in particular kind of lost their minds about that.

Kathryn: They did. They really lost it. Because, like we said in that episode, we are in their world. We are in a deeply conservative economic era. So something as basic as “people don’t earn enough money” is an absolute affront to their entire economic philosophy. So they have to deny it. They have to say it’s not as bad, and actually everything is great because we’re in their low-tax, cut-tax, deregulate-everything, light-touch-on-every-part-of-regulation, don’t-make-up-for-public-services, don’t-interfere-in-markets era.

Robin: Yeah. Don’t worry about busting up Google or Amazon. Don’t worry about merger, merger, merger, merger.

Kathryn: Yeah. So with the caveat that there are lots of conservative economists who will tell you I don’t know what I’m talking about and I’m manipulating the data, the real question that I think gets presented is: why has wage growth stalled out in the United States? It is a story that has changed over time. The story has really transformed from “there’s something wrong with the workers” to “there’s something wrong with the economy.”

Robin: That’s the grand arc.

Kathryn: That’s the grand arc. And we call this the great stagnation. Labor economists do. Lefty labor economists. The great wage stagnation. But the reasons for it — the first one that comes up, that takes hold for like 20 years, is called skill-biased technical change. And what drives this reasoning is that one of the things that happened starting in the 1980s is that wages for college-educated workers grow really quickly.

Robin: Sure.

Kathryn: And wages for non-college-educated workers start to sink. We have a new technology — computers — and that technology is going to reward workers who use this new technology on the job. So the reason why wages are stagnant is because of skill-biased technical change. The economy is rewarding different skills differently.

Robin: I can see why this would be an appealing thing, but your plumber is still your plumber. Why?

Kathryn: Thank you, Robin. There’s like five guys at Harvard who got tenure for this exact argument, and anyone who disagreed with them was stupid. I mean, I don’t like using that word, but the number of times I have been called stupid for saying I don’t think skill-biased technical change is enough…

Robin: Or I’m equally stupid, because I’m about to pay a plumber $350 to scope a clogged line.

Kathryn: This really aligns with the decline of manufacturing in the US. And so the sister to skill-biased technical change is trade. We globalized. We trade. We want to have more efficient supply chains and cheaper consumer goods. And as a result, we kind of hollowed out high-paying jobs for workers who don’t have a college degree. So skill-biased technical change and trade is the story for, I mean, 30 years.

Robin: Yeah. Until well after 2001, right?

Kathryn: Yeah. And it’s such a nasty story. You’ve just got a lot of people who don’t have that many skills, and the economy’s not strong enough for them to get jobs. The companion to that is that the labor market needs to be really, really tight for wages to grow. Because if you look at this very bumpy line that is wage growth in the economy, the periods in which we can see the line jump up are when the unemployment rate is at 4% or lower.

Robin: Mm-hmm.

Kathryn: They need really special economic conditions for workers to be paid more.

Robin: And that’s acceptable to the — I don’t know who’s ever doing these analyses. Or ideal? It’s actually ideal.

Kathryn: They make it really a skills story. Workers don’t have enough skills. Those skills aren’t valued enough in the labor market. There’s too many of them. So unless the labor market’s at 4% unemployment and we’re at full employment, their wages aren’t going to go up. In fact, if you look at real wage growth for the bottom 20% of workers, it is an absolute flat line, and then it’ll jump up during, say, the late 1990s when unemployment was really low. And then it’s an absolute flat line again. And then it jumps up in 2022, when unemployment was at 3.5%. That story is true, but it also makes it seem like we don’t have any power over that.

Robin: Yeah. I was going to say, it does just sound like, well, this is just “perfect competition,” and this is how it works.

Kathryn: It’s not that it’s not true. It’s just that I think it’s not a satisfying story, because it takes a lot of the responsibility out of the hands of policymakers. Like, this is just what our economy looks like now. And one thing I always think about when we talk — when you hear people talk about AI — is that they’re basically repeating this over again.

Robin: It does sound familiar.

Kathryn: AI’s going to reward people…

Robin: Well, we’re all just going to lose our jobs.

Kathryn: You know — big job loss, and people who can use ChatGPT will make a lot of money, and everybody else is out of luck. “I guess our economy is $31 trillion in size, but actually 70% of us don’t deserve a raise. That’s just how the economy works.” I see what you’re saying, and I think, to a degree, it could be true. But it is not our fate, and it is not a complete explanation. So that’s the first half of this explanation. The second half is all my favorite stuff. Why aren’t wages growing? Well, you stopped raising the minimum wage. You stopped enforcing labor standards. We don’t have overtime really anymore, because the standard by which people are regarded as needing and deserving the right to overtime has basically eroded over time, so that almost no one gets it. We don’t have unions anymore, and they’re really good at raising wages, even for people who aren’t in unions. It’s like, hey, don’t throw up your hands and make it sound like there’s nothing we could do.

Robin: Right.

Kathryn: You also walked away from that.

Robin: Right.

Kathryn: It’s not just that the economy has changed. It’s not just that labor standards and labor enforcement and the government’s view on what workers deserve in terms of protection has changed. It’s that the market itself is becoming slowly poisoned. And it’s really the counterbalance to the first story of “workers don’t have enough skills or the right skills,” which is really that workers don’t have enough power. And the problem with monopsony isn’t that there’s anything wrong with the workers. It’s that there’s something wrong with the markets, so that workers don’t have power. The classic version of monopsony is a company town, like a coal mining town in West Virginia in the 1920s. Even people who work at the grocery store are working at the coal-mine-owned grocery store.

Robin: Mm-hmm.

Kathryn: That’s an extreme version in a static form. But monopsony is really just the idea that you do not have many employers competing for your labor.

Robin: Right.

Kathryn: It’s not a one-or-zero. It’s something that happens in degrees. Economists have a tool that they use to measure concentration — I’m going to get these guys’ names wrong, because they both start with H. It’s called the Herfindahl-Hirschman Index. See? And who says economics can’t be fun? The Herfindahl-Hirschman Index is an index of market competitiveness. You just put various features of the market in it — it can also be a seller’s market — and it spits back the degree of competitiveness.

Robin: Like any kind of market, or specifically a labor market?

Kathryn: Any kind of market. But we’ve been using the HHI to see how competitive labor markets are. And you get these really staid economic research reports that are like, “Yep, every decade since the 1970s, the HHI is showing we have less and less competition in employer markets.”

Robin: I guess that shouldn’t surprise us. We were talking a few weeks ago about the concentration of engineering firms or accounting firms. There used to be the Big Seven, and how many are there now? Are there two? Are there three?

Kathryn: Yeah. The big consulting firms, the big banks. The corporate consolidation that you see on the consumer side has its own labor market consequences.

Robin: But that wasn’t necessarily the problem in the ’70s when this started, though, right? This has just evolved into that being the big force?

Kathryn: Yeah. The labor market is getting more and more concentrated over time.

Robin: Right. So this may be a sidebar. The other thought that I’ve had about wages is the other things — particularly healthcare costs — that are being drawn off of people’s wages, essentially.

Kathryn: That one’s hard to see, because the people who get health insurance from their employer are higher paid.

Robin: That’s true. And I guess at lower-level wages, they were never getting that, and they’re not getting it now.

Kathryn: Yeah. So it’s hard to know how much it suppresses wages, because it’s a luxury benefit.

Robin: Right.

Kathryn: I should say, this weak wage growth is something that affects — this is a failure of labor markets to produce enough competition to bid up wages for everyone in them. Now, people at the very, very top are doing well and can do well in really almost any condition. But the competition that you need to see in the labor market for the rest of us is not “think of your poor fellow man out there.” Like, this is your wage. This is you.

Robin: This is teachers.

Kathryn: Yeah. This is you, lawyer. This is you, doctor. This is you, programmer. This is you, person who runs a shop. All of these.

Robin: It’s definitely you, journalist.

Kathryn: Definitely you, journalist. Yeah. So this is a problem.

Robin: Is the only way that you deal with monopsony antitrust bust-them-up litigation?

Kathryn: I mean, that would help. Yeah, that would help. We don’t have a ton of successful strategies for breaking up employer concentration.

Robin: Because we don’t care about employer concentration. We care about product concentration, right? We only care about competition for us as consumers, not us as sellers of our wages.

Kathryn: And when the FTC makes decisions, they don’t really look at the labor market consequences. It’s really about seller concentration.

Robin: And whether the stuff you get will be cheaper. I think it’s one of the reasons that they have continued to allow so many mergers, because companies have gotten very good at making the argument that this will be good for consumers. And nobody’s out there making an argument about what it’s going to do for employees, or against employees.

Kathryn: Oh, yeah. In some mergers, they’ll be required to close 10 stores. Was it Kroger-Albertsons?

Robin: Mm-hmm.

Kathryn: That was a mega-merger after another merger. And in one of them, they profiled a grocery store where a guy was on his fourth grocery store merger. Every time the grocery stores merged, he was at one of the stores that had to close for competitive reasons. In order to keep the consumer market competitive, he kept losing his job through grocery store mergers. It was so dystopian. He’s an extreme example of something that affects a lot of us, which is employer concentration.

Robin: Sure.

Kathryn: So I wanted to talk to the Optimists about this, because for me, this links together a lot of aspects of the labor market and public policy. California raised its fast food minimum to $20 an hour.

Robin: Wow, is it 20?

Kathryn: On April 1, 2024, California implemented a $20 hourly wage floor for workers in large fast-food restaurants and snack and non-alcoholic beverage bars. A group of researchers in California looked at the effect of this minimum wage increase and whether or not it reduced employment or increased prices. And they found really, really small effects. This is from their summary: “Large employer fast food minimum wage increased wages by about 11%. It did not reduce employment. Prices increased by about 1.5%, equivalent to 6 cents for every $4 item. Employers passed 50% of the higher wage cost onto consumers, consistent with a monopsony model.”

Robin: Huh.

Kathryn: This is from the Institute for Research on Labor and Employment out of Berkeley. So basically, you have heard, probably your whole life, whenever someone brings up the minimum wage, that it’ll cause job loss. And yet, in study after study, the minimum wage is supposed to cause job loss, but you just don’t see it. It’s not large. It’s not demonstrable. Even with these large wage increases — $20 per hour for fast food workers in California — you just don’t see these massive drops in employment. That makes sense, because the drop in employment is predicted off of perfect competition. It would not reduce employment if employers had monopsony power.

Robin: Hmm.

Kathryn: So I think what’s emerging over the last maybe 15 years of labor economic research is not only the degree of concentration, but the consequences of concentration, not just for wages but for wage policy. I think maybe I’m saying this wrong, because I’m saying it in the term that makes sense to me, which is employer concentration slash monopsony. And it’s possible that that hasn’t sunk in, or just isn’t natural for regular humans. So let me try a different term.

Robin: Okay.

Kathryn: It’s about mobility. Movement of workers. The more concentrated the employer market gets, the fewer options workers have, and the less they can move around. And that matters, because mobility is at the heart of wage growth in the US.

Robin: True.

Kathryn: The reason why employer concentration is bad is because mobility is so important, and it limits that.

Robin: And people don’t, or can’t, move enough within a job, within a company? As these companies get really big, you would think that you could move around inside.

Kathryn: A big company can be a good employer. Having one job for your whole life can be fine. But in a market, what drives up wage growth for everybody is having movement across jobs and employers. That doesn’t mean that the only people who have high wages are people who moved, and that people who stayed at an employer never get a wage increase. This is a basic measure of health.

Robin: The market itself isn’t dynamic. It isn’t a healthy market if people aren’t moving around.

Kathryn: Yeah. You can be at an employer for a long time in a dynamic market, and you will make more money than if you were at an employer for a long time in a static market.

Robin: Mm-hmm. Interesting.

Kathryn: That’s it. You don’t have to be mobile. Workers have to be mobile, and that bids up wages for everybody. What makes this lack of mobility particularly damaging is periods where you have a lot of people who are unemployed, like during recessions. A lack of mobility would be what makes it really hard to find a job after you lose one.

Robin: Oh, sure. Okay.

Kathryn: If you lose your job, how many employers do you want in your city? Five, or 500? You want 500, because the more employers, the easier it is for you to get a job when you don’t have one.

Robin: Right. So rebounding from losing a job is a lot harder.

Kathryn: Rebounding from losing a job gets a lot worse if you don’t have as many options. It’s the same question, but for wages. Are you going to have more wages if there are five employers or 500? There’s a study that came from former BLS Commissioner Erika McEntarfer, from before she became BLS Commissioner. She wrote a research paper about wages after you leave a job. What the paper found is that the reason unemployment can have such a scar on people’s wages is because of how long it takes them to find a job, and that they fall down the job ladder. If there are 10 firms at each rung versus one firm at each rung, it’s just a lot easier to fall down.

Robin: Oh. So instead of working at the LA Times, I’m working at the Legal Beagle Court Reporter paper.

Kathryn: Right.

Robin: It’s interesting that when I look at a lot of these other reasons about wage stagnation — you can tell me if I’m getting off track here — but if we really believed that these were the things that were causing wage stagnation, and we cared, and we cared that wages were stagnating — if we really believed it was skills, we could have done something about that. If we really believed it was trade, we could have done something about that. I guess what I’m wondering is: do our policymakers care about wage stagnation? We know that our corporate leaders don’t care. Wage stagnation is great for them.

Kathryn: We could still do things.

Robin: We could still do things. We’ve talked about a lot of the things that we could do over the last year and a half on this show. Raise the minimum wage. Make it easier to form a union, and force employers to actually negotiate with the unions that have been formed. Starbucks still doesn’t have a contract.

Kathryn: Starbucks still doesn’t have a contract. And remember, anyone who works for Starbucks corporate, we are registered as a charity with Benevity, so you can double the contributions through your employer for the show. I see so much optimism in the labor market, because a little can do a lot. It’s not like 170 million people are all malemployed, or none of them have jobs, or none of them are earning. We have to make some fixes, but the dividends are so high, because it is such a large labor market. I don’t know if every labor economist would agree with that. I think some of them would say that maybe markets are too segmented, or different parts of the labor market need different things. But to me, the North Star of the labor market being more remunerative is movement. We need people to be able to move around from job to job to job, to get lots of offers, to use them in bargaining.

Robin: Yeah. When we have our nostalgic fantasy for what the great economics of the 1950s and ’60s were, we imagine somebody who worked in the same job for 30 years and got a gold watch at the end of it and retired. I don’t think that those of us who are employees generally think of a lot of movement as a desirable characteristic. We think slow and steady wins the race. As you know, I worked for five years as a contract editor for a talent management firm, and one of the things that I learned was that if you really wanted to get ahead in corporate America, you change jobs every three years.

Kathryn: Yeah. There’s a lot that goes into wage growth that I’m not talking about. Certainly one of them is that part of what explains wage growth is that you’re at a more-productive or less-productive firm. And so they develop what we call firm-specific human capital, where it’s not just that they’re good at lawyering — they’ve really figured out this firm, and they’re very good at their firm. That is one way that wages accumulate, is that you stay at a high-paying firm. That is also true. Also important. But it’s not the main character. That’s like little sister in the movie who’s helping you pick out an outfit before the date. It’s still main-character energy.

Robin: My wife says that science — but I think economics is probably more true than actual science — what science really is, at the end of the day, is competitive storytelling.

Kathryn: Yes. She’s so right.

Robin: Yeah, I think she’s right too. Scientists really hate to be told this. But I think in economics, or in the kind of policy-related space that we’re talking about, the competitive storytelling is the heart of it, right? If people believe that the story is skill-biased technical change, or if people believe that the story is lack of unions, then that’s what they act on. It’s why these fights, or these disagreements — they’re not just bar arguments for fun. They have potential real effects. And one of the things that you’ve pointed to is the conservative economic arguments, and the conservative ideas about policy interventions being unnecessary, and everything would be better if it’s just this kind of laissez-faire market for everybody and everything. Well, they won that debate, that storytelling competition, for years and years and years. And it’s an open question as to whether they continue to win it.

Kathryn: And I think about how important it is to stress that I don’t wander through the world bright-eyed and bushy-tailed, thinking someone just needs to hear me explain the minimum wage and then they’ll be for it. The hold that this narrative — that we just need markets to be market-like, “let market be market” — that has such a hold on people.

Robin: Yeah.

Kathryn: Markets are great, but when they fail, what do you think we should do? Should we let them hurt people? I think that sometimes the narrative gets lost in trying to defeat the other narrative, as opposed to building yours in its own lane. I don’t know how many times — I realize now that I’m going to be losing some invites — but at parties or dinners or holidays, I’ve said, hey, I also think high taxes could be bad, but we’ve had five tax cuts and you still can’t afford housing. So maybe try something new. Or the skill-biased technical change of, I understand that when people started using computers in the office, it was thought that that’s the reason why someone in Akron can’t have a good wage. But it’s been 55 years. There might be another reason why people in Akron aren’t earning as much money. I try to start from the perspective that dislodging a narrative is so tough, and the one that’s most effective doesn’t require you to convince people to totally reverse course —

Robin: To totally reverse course. Yeah.

Kathryn: Yeah, or reject everything that they had previously believed. And the wage story here is a really interesting one, because it’s a very empowering story to say, man, employers are crushing the market. We don’t have as much movement. We’re basically turning America into a series of small industry towns, like coal mining in the ’20s. We actually need more market, in this way.

Robin: We actually need more market.

Kathryn: Yeah, we need more market. And that, to me, is a more interesting way to engage. I try to do that. I don’t know how successful I am, but it’s definitely a lane I try to walk. And the wage story with movement and mobility and monopsony, I think, is one that can hit more than just “we need to regulate employers.”

Robin: Yeah.

Kathryn: So.

Robin: Okay.

Kathryn: What can we do? I didn’t nearly get to this part.

Robin: I was just going to say, do we — all right, what can we do? I mean, obviously minimum wage, obviously increasing unionization, but what can we do about —

Kathryn: Well, first thing we could do is take advantage of the moment. If we know and have decades of evidence that employer power has never been so concentrated in markets, this is the time to pass every labor regulation you could possibly think of. Because labor regulations could have market consequences, but those consequences are really small when the market is biased, or when the market is concentrated. Because the market’s not operating.

Robin: You’re saying, the minimum wage is the example you were just using. If we raised a minimum wage, initially, if you had a lot of small players in the market, it might actually cause not just job loss, but maybe small firms to go out of business. But there’s such concentration that that won’t happen.

Kathryn: What we know from employer concentration is that they’ve got a lot of room.

Robin: Mm-hmm.

Kathryn: What we know from two and a half decades of city and state experimentation with minimum wages is that they have a lot of room. For the hundred or so minimum wage increases we’ve had this century in various localities, we would have seen massive job loss by now. And the fact that we haven’t seen it is pointing to the same story: we have concentration in employer markets, which means the actual cost of implementing labor law is low, because they’re not pressed thin. It’s not tight for them. It’s loose. So this means you could raise the minimum wage. But you could also have mandatory paid sick days, mandatory paid holidays, mandatory vacation days, and paid time off for every worker. We could just roll that out in the labor market, and they would cry wolf and say, this is going to lead to so much job loss. But you can’t have your cake and eat it too in a market.

Robin: Mm-hmm.

Kathryn: So that would be one thing we can do: roll out decent labor law.

Robin: Oh. These would all be sort of updates to the — what is it? — the National Labor Relations Act?

Kathryn: The Fair Labor Standards Act.

Robin: Fair Labor Standards Act. Right.

Kathryn: Yeah. You could also increase the threshold for what it means to get overtime protection. We can do that. Then we can work on empowering workers. Knowing that they are outgunned in the labor market, assume we don’t have an effective way to change employer concentration — we can start empowering workers in a non-market way through access to unions, collective bargaining, sectoral bargaining. Just getting more powers to workers to bargain so they can bid up their wages.

Robin: Mm-hmm.

Kathryn: The big change — the one that will take a long time to really see the fruits of our labor — would be breaking up big business, which is something that has to happen on the consumer side and on the employer side, and changing the amount of concentration that we allow. It goes back to narrative. I’m with you: the government shouldn’t have control of all markets. But the pendulum can swing too far in the other direction. Do you know where the line is when we have too much concentration in markets? We’ve got four airlines.

Robin: Yeah.

Kathryn: What — do we get down to one?

Robin: We’ve got like three phone companies. And I don’t know — we’ve got basically one internet company.

Kathryn: I mean, the question I pose to a lot of people who tell me that they don’t want the government involved is: how few people do you need in a market before you will believe that it’s concentrated?

Robin: I had a theory about this. I thought that all markets needed at least as many players as we have teams in a professional sports league.

Kathryn: Oh, fun.

Robin: Yeah. Because I think we can understand that if there were only three teams in the NFL, it wouldn’t really work.

Kathryn: Yeah.

Robin: If there were only six baseball teams, not great.

Kathryn: Yeah. You understand this on so many levels. And I think that the market kind of trends toward consolidation.

Robin: Yeah.

Kathryn: Which is fine. We just can’t let it go too far. And every so often, it really helps to just reset and be like, all right…

Robin: Yeah.

Kathryn: …you’re all broken up. I mean, my God, I dream about a new antitrust act. But maybe we don’t need one. Maybe we just need this one to be better enforced. I carry a lot of optimism in this conversation, because this is the type of problem that you could solve to the benefit of tens of millions of people. I can’t say all, because speaking in absolutes isn’t always great. But the more movement we have, the payoff here, the payoff, the payoff here is so high. And the mechanism for the payoff is not a typical liberal, big, progressive policy. It’s just: get workers moving.

Robin: All right. We’re going to be back in a second, and we’ll do Executive Orders and Spiritual Sponsors.

EXECUTIVE ORDERS

Kathryn: Okay, we end our show with very petty ways to make the world better, called Executive Orders in the Rauzi Republic and the Edwards Republic.

Robin: Yeah. So my executive order today doesn’t have anything to do with the clogged pipe in my house. If the workers arrive without the tools that they need to do the job, the billing clock begins to move backwards until they get back with said tool. That’s my rule. Now, I know that this might be against all this stuff about wages and paying people better —

Kathryn: This does sound very specific.

Robin: I’m just going to say that if you don’t show up with the tools you need to do the job, you’re not on the job.

Kathryn: Okay. My executive order, staying in the visual arts space that I’ve been in for the last few episodes, is that any time there’s a chat leak — the one that happened with all those young Republican kids who turned out to be Nazis, the LIBOR scandal, the Puerto Rican governor who got taken down because of his group chat, Pete Hegseth, the Signal chat — any time there’s something like that, we need to have a public service where people act it out. If there’s a group chat, we are going to get a round table of actors, and people are going to read and act the group chat out loud.

Robin: A table read.

Kathryn: A table read. Think of this as a cousin of the new C-SPAN that I did last season, where we’re going to give C-SPAN complete production control to really turn our Congress into drama.

Robin: This would be a YouTube hit.

Kathryn: This will be such a YouTube hit. Any time. Just read the emails out loud when they’re leaked. Read the text message chain out loud. Assign everyone a speaker. Because I think it helps people to hear it. Sorry — there was a past listener who said that they really appreciated the Lily Allen recommendation but they’re also haunted by the demise of her marriage and listening to it. I think hearing and seeing has a different impact.

Robin: It does. That’s why I read, and don’t watch TV news.

SPIRITUAL SPONSORS

Robin: Okay. Spiritual Sponsors.

Kathryn: The things that get us through the week because we love them, and they keep us sane and happy and motivated in a crazy world. What is your spiritual sponsor?

Robin: My spiritual sponsor this week was introduced to me by a fellow Optimist at an Angel City football game. It is called a Dole Whip. Do you know what a Dole Whip is?

Kathryn: No.

Robin: So a Dole Whip is where you take pineapple juice and you whip it and freeze it and make it like soft-serve ice cream. It’s amazingly good. And they can also add rum, and it can be almost like a piña colada soft-serve. Apparently this was known to be almost exclusive to Disneyland, but now it’s available at BMO Stadium, where the LA Football Club and Angel City play. There’s always a huge line, and I never realized what it was. Now I know.

Kathryn: This actually reminds me of the really amazing Texas Monthly article I read on the history of the frozen margarita machine and the restaurant that invented it. “Did they know that they landed on pure gold?” Yes, they did. Lines out the door for a frozen margarita, like, give this man a Nobel. That one’s also really good. It sounds like the Dole Whip is like California’s frozen margarita. It changes things.

Robin: Yeah. It’s really good. There’s this huge line. I never knew what these people were standing in line for. I’m actually dreaming about the next home game, so I can go get another one.

Kathryn: So my spiritual sponsor this week is good sad songs. Just songs that are sad, but they’re so good that even if you’re sad and they’re sad, you’re still just happy that this song exists. It’s a real nuanced moment.

Robin: Is there one in particular?

Kathryn: Yeah, I’ve been listening a lot to “Waxahachie” — it’s off of “The Marfa Tapes.” That’s a perfect — it’s a good sad song. Sad songs are amazing. When they hit, they hit. So for the Optimist who wrote in and said Robin and I have been doing pretty good with music recommendations — “Waxahachie.” I should also say that my spiritual sponsor should be the Optimists. We hit a major milestone in our show, which is that I got recognized out in the world. Someone came up to me and said, “Hey, Optimist.” And I was like, wait, what? That’s the name of my podcast. And they’re like, yeah, I know, because I listen. And I was like, wow, I got there. So I was recognized out in the wild this week — twice in one night. It was kind of delightful. I was caught way off guard. My other spiritual sponsor for the week is being recognized as the Optimist in the wild. And then, separately, sad songs. I’m going through a lot.

Kathryn: That’s our show. We’re done. Sofi LaLonde edits the Optimist Economy podcast, and our video excerpts are created by Andy Robinson. You can find them and share them on YouTube, TikTok, Instagram, and LinkedIn. If you’re on Substack, we have free transcripts of the show, and subscribers can join our chat room, paid or unpaid. But first, a snap-out to Andy and Sofi, and then Robin’s bit. Natural! It’s my production note. Make it as natural as I am not.

Robin: Optimist Economy is actually a 501(c)(3) tax-exempt nonprofit. So if you have a donor-advised fund, or an employer like Starbucks who matches donations, please keep us in mind. We truly appreciate all contributions. And we’re still on all the creator platforms, but we do keep the largest share of your donations when you give at optimisteconomy.com.

Our show is edited by Sofi LaLonde. Video production for social media is by Andy Robinson of Andy Robinson Video Consulting. Support from listeners like you helps keep the podcast going — you can contribute at optimisteconomy.com. Optimist Economy is distributed by PRX.