The Real Cause Of Wage Stagnation - ft. Arin Dube

This type of monopsony power or wage-setting power is really built into the nature of this market. Different from markets that may be relatively easy to switch to, like what brand of cereal, although even there, as we know, there's brand loyalty and other sources of differentiated products that give some degree of pricing power. Jobs are a lot more so because there's a lot more at stake and we don't typically change jobs in the same way we change breakfast cereal. And as a result, that these kind of mobility and other frictions are just likely to be a lot harder to just wish away. I'm Bethany McLean. Did you ever have a moment of doubt about capitalism and whether greed's a good idea? And I'm Luigi Zingales. We have socialism for the very rich, rugged individualism for the poor. And Mrs. Capital isn't a podcast about what is working in capitalism. First of all, tell me, is there some society you know that doesn't run on greed? And most importantly, what isn't? We ought to do better by the people that get left behind. I don't think we should have killed the capital system in the process. For much of the 20th century, we economists have repeated a simple story of why everybody wins when companies invest and innovate. Better technology means workers can produce more because worker and more productive companies fight over them. And because companies are fighting over them, we just go up. Basically, if you help bake a bigger economic pie, you are guaranteed a bigger slice. The story actually fits the data very well or the data fits the story very well for the three decades after World War II. In those years, productivity rose by 97%. In average salaries, they went right up with it, rising 91%. The pie got twice as big and everyone's slice got twice as big. Right around 1973, the relationship broke down. Between 1973 and 2014, productivity kept climbing up another 72%. But average real salaries barely budged, rising only 9%. And it's shocking why all of a sudden did the moving escalator of capitalism stop working? I feel like we're getting into a few too many metaphors here. Luigi, is capitalism a pie? Is it an escalator? What do you think? No matter the metaphor, this is the $3 trillion question. And over the last 10 years, one explanation has emerged as probably the dominant one with a funny name, monopsony. I think all our listeners are familiar with the term monopoly at very least because of the board game. Literally, a monopoly is the idea that there is just one seller in town. Monopsony is when there is only one buyer in town. And how can monopsony explain the lack of age growth? You cannot possibly tell me there is only one employer in the United States. You absolutely right, Betony. Today, economists use the word monopsony to describe what we call in-jurban frictions, that make it hard for a worker to pack up and leave for a better job. If it is too painful for you to leave, your employer has all the leverage. Think of the national job market like a massive grocery store. Ideally, a worker can walk around and shop in any aisle to find the best job. But segmentation means putting up invisible walls. And when an employer knows you are locked in that aisle and you can't shop around, they don't offer you the best deals. And so they don't offer you the most competitive salary. Okay. From pies to escalators back to shopping markets, grocery stores. I guess the pie belongs in the grocery store, so maybe it's all making sense now. There are elevators. And there are escalators in the department stores, in the grocery stores. No, not in many grocery stores, but whatever. We won't go in that direction. Anyway, to discuss this problem more generally and what can be done about it, we are delighted to have Aaron Duby, professor of economics at the University of Massachusetts Amherst, and author of the forthcoming book, The Wage Standard, What's Wrong in the Labor Market and How to Fix It. The book is a fascinating tool through the labor market literature of the last 30 years, written by an insider to this literature, but one with a real gift for explaining it to the broader public. My impression is that in the book, you use the term monopsony to indicate a number of frictions in the labor market. To what extent do you think the monopsony is due to excessive concentration of the employer? To what extent is due to other factors? Generally, monopsony, the word, of course, quite literally would mean a single employer, is actually historically going back to Greek of a single seller of fish, as it turns out. But it may be the case that in some situations, the number of employers is relatively small. In other words, the market is concentrated. So really interesting work by Ioana Mariniescu and co-authors suggests that most workers in the US are operating in effectively a labor market with three effective employers that they're choosing from. That's a very small number. At the same time, as I argue in the book, it's probably not the dominant way of how monopsony power arises in the labor market, especially not in thick urban labor markets. There are two key reasons besides concentration, why we see a lot of monopsony power, which just simply means the ability of employers to influence wages and pay whatever wages they're paying without losing all their workforce. And that is, first and foremost, there's some amount of search friction. Quitting a job and searching for a job and moving to another job are all costly, and that can really throw some sand in the wheels of the functioning of the labor market. And then there's the fact that the same job, in fact, what looks like identical on paper, could be valued differently by you and me. The simplest example, for example, is commute time. There are lots of other factors like that besides commute that can make the job somewhat different. So if I change my wage, maybe as an employer, I choose to pay a dollar an hour less. I'm going to lose some people, maybe who valued them just at the margin, but then I'll keep some other people who actually value the job a little more. And this also gives an important amount of wage-sitting power that's just kind of built into modern labor markets. Do those caveats around monopsony help explain why salaries at the bottom, but not at the top of the distribution have not increased much? I think it does in a couple of different ways. First, what we see is if you went back to 1980, if you got a job at a large firm, you pretty much felt like you got lucky because you got a better paying job. But that actually stopped being the case over the 80s and 90s. And by 2000s, for those in the middle and the bottom, it just wasn't the case anymore. And one of the factors behind that is firms ended up changing some of their wage policies when they didn't actually have to pay a higher wage, perhaps because of other pressure or social norms, or for example, in certain sectors, they reacted by as much as possible lowering wages for those at the bottom. And we've seen some really interesting work that show that in the 80s and 90s, for instance, when a company switched its CEO from being someone typically hired internally who was promoted to a CEO versus someone who was hired with an MBA from the business school, just that one decision led to very substantial reductions in wages, but particularly for blue collar workers. So I'm a little bit confused because if there is excessive concentration, there is variety in jobs, they should apply almost as much at the top as at the bottom of the inter-institution. And it's just the University of Chicago is certainly a monopsony in Hyde Park, as far as I'm concerned. And even if there is another university in town, which is Northwestern, is not exactly identical, and maybe for commuting reasons is one, I can say other reasons, but there is a lot of heterogeneity. So why most of the effect, or maybe not most of the effect, maybe everybody's underpay, but so the result that people are paid way below the margin of productivity is a result that applies only at the bottom of distributional everywhere. That's a great question. And I think generally speaking, there's a good amount of evidence that there's monopsony power throughout the labor market. However, it is also the case that the extent of an obscenity power is surprisingly strong at the bottom. These markets are particularly once where there's a lot of wage markdown and wage difference between higher and lower paying firms. So that may be surprising. Why is that the case? And I think it's sort of a broader, more macro story. And what is that story? And that story is that we actually interestingly spend a lot more time with relatively high unemployment rates generally. After 1980, we spend about two thirds of the time below a fairly commonly used metric of full employment, which is constructed by the Congressional Budget Office. If you went back to 1950 to 1980 period, it was about a one third of the time. So we used to actually have relatively tighter labor markets. Why does this matter? This matters because a tighter labor market is particularly tight for low end workers. And as a result, if you spend more time with relatively slack labor markets, that's a market where employers are going to actually have greater amount of wage setting power. The really kind of most compelling example of this really arose after the pandemic, because it actually went the other direction. After the reopening of the pandemic, we had an extremely tight labor market, which was particularly so for workers in the bottom third of the wage distribution. And as my co-authors David Otter and Annie McGrew document, and I talk about this in the book, this period led to a very sharp and dramatic increase in wages at the bottom of the labor market, driven almost entirely by increasing quits amongst this workforce, as workers moved from lower paying to somewhat better paying job, pushing up wages by increasing competitive pressure. There's this long tradition in economics of criticizing any form of price control from rent control to minimum wages, that the rationing effect is so large, just to offset any potential benefit to people benefiting from lower rents or higher wages. In your book, you summarized the long intellectual journey to disprove this idea empirically. Can you share some highlights from your own journey? I did my PhD at the University of Chicago, and when I was there, the idea that the labor market was relatively best understood as a competitive market was pretty prevalent in economics generally. There were definitely a lot of work that was suggesting that maybe wage setting was more complicated. And that included, of course, the very famous or infamous, depending on one's perspective, work by Carter and Kruger on minimum wages, comparing New Jersey and Pennsylvania. And just to be clear for listeners that what they found was that New Jersey, which raised its minimum wage by between 20 and 25%, actually did not see job loss among fast food workers as compared to neighboring Pennsylvania. One of the things I talked about in the paper is that we can actually do some more of a meta-analysis in the sense of just summarizing the evidence from a bunch of studies, and nearly 60 studies report what happens in the US when the minimum wage rises to wages and employment. Generally, what you find is this. On average, if you take the typical study, it suggests that if the minimum wage pushed up wages by 10%, maybe there would be a 1% reduction in employment from that. That means that roughly 90 cents of the dollar increase in earnings that would happen without any job losses actually occur. And that's the typical study most studies find either positive, close to zero, or very small negative effects. And that is very reassuring that at least for the type of minimum wages that have been studied, and that's an important caveat, that we have seen wages rise without costing jobs a lot. And one of the reasons for that is we have seen sharp reductions in turnover. This is now exactly what the theory of a monopsynistic labor market predicts, that you pay a higher wage, what happens? Firms find it easier to fill vacancies, and they actually have to worry less about more workers leaving. So, separations or quits fall, and vacancies are filled fast, so you end up to a point killing vacancies more than killing jobs. It's also the case that when the minimum wage rises, some of the labor cost is passed on as higher output prices. Now importantly, that doesn't seem to reduce the product demand for burgers and retail goods and services very much. And as a result, that doesn't harm low wage workers, it does mean that essentially middle and higher income consumers are bearing some of the costs of paying a higher wage, and that is one of the ways in which we actually absorb a minimum wage increase. And so, I think what we have learned is to a point, you can actually make the labor market work better for most middle and low wage workers without causing a lot of harm. Given that it seems that overall raising the minimum wage doesn't lead to this dramatic loss in employment that conventional economists might have once said it did, why given that we're all supposedly concerned about inequality, why has Congress not updated the minimum wage since 2009, and why did 20 states not pass a state minimum wage above the federal one? In other words, why are we not changing policy if the academic evidence seems to be pretty clear overall at this point? No, that's a great question. Of course, the main reason they're doing that is in order to run a natural experiment for a generation where half the country has a minimum wage and the other don't, because otherwise, how can we really credibly estimate the long run effects of the policy? I am kidding. It's also the benefit of each other. It must be because I can't think of any other positive reason to set policy this way. Look, the minimum wage is a very popular policy. It's popular among voters who are Republican, who are Democrats or independents. So anytime it actually goes up for as a ballot initiative, almost all the time it actually has passed, and that includes in red and purple states. It's just the case, however, that the Republican Party leadership and including in state legislatures are quite reluctant to increase it, in part because I think it reflects interests and thoughts of relatively narrow set of businesses. If you actually at this point, even larger businesses especially, and even some smaller businesses are open to a higher minimum wage, but the restaurant lobby, for instance, is very strongly opposed to it. So there are different possibilities, but I think it's largely a question of political economy, not about voter preferences. Now, that being said, there is a question of exactly how high can you go. Obviously, just because the minimum wage to date is, I think, has been shown to be relatively effective doesn't mean that it would continue to be the case. And that requires taking a dispassionate look at the evidence. And at some point, especially as we explore more ambitious minimum wage standards, we will learn that maybe this went too far and this is probably a good place to stop. I certainly buy that if there is a monopsony power in the marketplace, a minimum wage could be the right policy to follow. But I'm still struggling about the causes of this monopsony power. I understand that if I am Walmart and I see that I can make a little bit more money by hiring an extra employee, but in order to attract the extra employee, I need to push up the wage of that extra employee and probably the wage of everybody else in Walmart, that makes it not worthwhile to do it. That's one version of the monopsony. But imagine I am a baker and I'm alone and I bake bread and cookies and I really desperately need some help. And I can quickly calculate that if I add another person, that person will more than pay for himself or himself. So in that particular case, I should be hiring an extra person because I don't have any employee whose wage will rise and I have no reason not to hire that person. So it must be that the highly productive jobs are in limited quantity and the jobs that are in plenty of supply are much less productive because otherwise everybody will start bakeries and hire people and beat up the wages. Yeah. So I think this is the key thing that you highlighted is the role of this differences in productivity across firms because that's a key prediction of the model that I think actually is borne out in the data in a couple of contexts that in a market where you have a degree of monopsony power, you actually have workers in relatively low productivity firms working. And this is actually one of the really interesting things that happen when either there's a minimum wage increase, for instance, you see workers reallocated from the low productivity firms to higher productivity firms, which is one reason why those overall employment effect is quite muted, even though if you are a low productivity firm, you very well may see some job losses. It's just the case that those job losses aren't just losses to the market. They're actually workers who end up taking jobs somewhere else and that's a very important mechanism of the reallocation aspect of what the minimum wage is doing. Interestingly, it's exactly also what happens when you have a tight labor market. We saw this in 2021, 22, 23. We have this huge reallocation from those bottom employers to higher paying employers when the market's tightening and that's one of the important mechanisms through which you are increasing pay. What's also fascinating is that it turns out one reason why so many workers are at very low wage firms and there are many reasons for that, by the way, but one reason is that sometimes workers don't actually know how much better opportunities there may actually be out there. And as it turns out, this is particularly true for workers who are in low wage firms. As opposed to high wage firms, workers know that they're in a high wage firm. If you're in a low wage firm, sometimes you actually don't. So then if there's some shock that actually suddenly you see other people switching jobs as you did in 2022, 23, that might actually accelerate and increase some degree of competition by this reallocation process. But more generally, the idea that there are differences in productivities across firms is quite important. And one of the implications of spending a lot of time in relatively slack labor market is that it allows for firms that frankly would only survive with a low wage strategy to be able to actually recruit and retain workers. And if something happens, either a policy that increases the minimum wage, for instance, or that increases generally the tightness of the labor market, we will see a job ladder process where workers end up leaving those jobs and joining to high productivity firms. So in a very important sense, if you want to make the market work well, you want policies that I believe should really enable workers to be better matched with higher productivity employers. You're suggesting that there is a market failure in the sense that workers are not properly allocated at the highest value use. And I can see even a way to make money because you're saying that if you can inform the people working for lower wages, that they can reallocate more profitably. So you can go to Walmart and say, I advise you how to move and work for target, and you're going to increase your wage. And I am going to advise you and I'll ask a small fraction of your increased wage to pay for my service. So there is a business to be made in reallocating workers. Why don't we see this happening? So just to be clear, the question is why do we not see workers getting reallocated to the right place by some intermediary who sees that, well, gee, John here is working at a low productivity firm. Why doesn't John move to this high productivity firm where they could potentially have a higher output? Is that the question? Yeah. So I think that that is exactly the right question. Fundamentally, it may be the case that initially John doesn't really want to change job. But it also may be, like I said, that maybe there are certain aspects of the jobs that John feels like, well, maybe I don't really feel like it, I'm not exactly sure how I'll get along with my supervisor at this high productivity firm, etc. So all of this is to say that this just adds more, again, throwing more sand in the wheel, just like that high productivity firm just offering a higher wage couldn't attract the worker any intermediary. It's going to be hard for them to magically make these frictions go away. But fundamentally, what that gets to is this type of monopsony power or wage setting power is really kind of built into the nature of this market, different from markets that may be relatively easy to switch to, like what brand of cereal, although even there, as we know, there's brand loyalty and other sources of differentiated products that give some degree of pricing power. Jobs are a lot more so because there's a lot more at stake and we don't typically change jobs in the same way we change breakfast cereal. And as a result, that these kinds of mobility and other frictions are just likely to be a lot harder to just wish away. And so this is important because look, if we could reduce some of the frictions, then that may seem as the first best. And I think that that's a great idea. And we should pursue policies to do that whenever possible. One of the things I talk about in the book is another source of monopsony power, which is in some ways the most obvious one, one that Adam Smith talked about, which was actually outright collusion or just other forces of artifice. And so there was a collusion practice, for example, by major tech firms in Silicon Valley, who basically all agreed not to hire from each other. And there was this infamous case around 2007, 2008, where there was an email, for instance, from Steve Jobs writing to Eric Schmidt in Google saying, Hey, one of your guys was trying to recruit one of our engineers. I really appreciate if you stop this. And then Eric Schmidt looked into it and wrote back saying, it's done. That was an error. The person is already being fired. And Steve Jobs responded with just a smiley face. So anytime that happens, we should certainly try to address it. Another example is just non-compete agreements, which 30% of workers in the US end up signing just in order to get a job, which basically prevents them from moving to another competitor. The idea is supposed to be that this is helping protect trade secrets. But there are these cases like, lots of these jobs are hairdressers or sandwich chains or summer camps. Now, you don't exactly have to protect a trade secret to work at a summer camp as a camp counselor. So getting rid of these non-competes are certainly making them much less frequent. It would be a good idea. The FTC under the Biden administration did propose such a policy, but then it has been challenged in courts and it's unclear. But generally speaking, any kind of monopsony by Artifice, if we can fix it, we should. However, one of the arguments I'm making in the book is that even all said and done, after all of that, it's not likely to be the case that we'll get rid of the problem or even most of the problem. Historically, one of the things that we have done in this is basically having institutions that are countervailing. Historically, the unions in the labor movement did play a role in of that. At this point, private sector unionism is extremely low, barely about 5%. And it's very hard to imagine that changing in any sort of quantitatively meaningful way. So we need other policy and institutional approaches to have that sort of countervailing power. In my book, I talk about the role of macro policy because if we actually had tighter labor market, that would go part of the way. We have seen pressure campaigns have changed wage setting behavior, including among large employers, including Amazon and Walmart, but also banks in the US have instituted voluntary minimum pay standards. Those are helpful. But again, I think each of these can only go so far, which is why we need a broad set of tools and broad set of policies that push back and provide some countervailing force that offsets the impact of the monopsony power. I was thinking as you were talking of how crazy it was that we ever thought that labor markets were efficient because, of course, there are all these frictions. And I was thinking that the labor at your job is not like your brand of toothpaste. It's like your bank. It could commit an awful lot of sins before you're going to leave it, right? But as you mentioned, macroeconomic policy, I'd love for you to expand on that a bit more. Is that actually the most important thing? And then what should the macroeconomic policy be in order to create these tight labor conditions? Is that the most important tool we have to push back on monopsony power? So I argue that you need all these prongs. You need a macro. You need a micro. And then also you need what I call meso, which is in the middle. And the reason is because anytime you push too hard on one, you're more likely to run into unintended consequences. If we pursue relatively more full employment policies, we are likely to see more broad-based wage growth. Can we just rely on that? No, because it comes with its own risks. And those risks include pushing too hard on those and then having inflation. Similarly, if we think that we can just encourage employers to do the right thing, well, by increasing maybe public pressure, then we actually have some examples of that. As it turns out that these voluntary minimum wage policies are quite effective at raising pay at these major companies. Really interesting work by Elora Deronancourt and David Weill that I talked about in the book shows that it actually sharply raised wages in these companies. At the same time, they found that it didn't lead to a big spillovers in wages in other employers in the market. And so that's sort of like, if you kind of thought that, gee, if we took the biggest employers and really helped build a wage standard of these companies, that alone could spillover and solve the problems of a monopsynistic labor market, et cetera, then you would be somewhat disappointed. So that's the limit of the micro strategy. It has a role, but it will only get you so far. As a result, I argue that it's important to think about wage floors more broadly. And here, we don't simply want to increase the minimum wage forever. Minimum wage also has an important role, but at some point, the amount of compression you would need to raise the minimum wage closer and closer to the median wage becomes quite extreme. So instead, what about if we build wage standards and floors by different types of jobs more broadly in the economy? That sounds very radical. It turns out most high-income countries have some version of this, be it through collective bargaining or through policy. So all of that is to say that I think we need a broad approach. Given the variety approach, I'm surprised that you don't even mention the book Another Level, which is immigration. I find it particularly surprising because if you look at the correlation at the time series, like you had done for the Fed, the immigration is really correlated with low jobs. And it says before the 1980, less than half a million people were coming into this country by 2010, where more than two million people, legal and legal, were coming every year into this country. So there was really an explosion. And then we saw that during the first Trump administration, there was a cut down on immigration. Then there was COVID that forced a lot of illegal immigrants to go back home and then reduce initially at least their entry of illegal immigrants. And then we saw an explosion of the wages at the bottom. And then we saw that toward the end of the Biden administration, where the huge inflow of immigrants, and then we saw all of a sudden actually inflation disappearing and wages not rising at the bottom or all of a sudden. So at least at the very superficial level, there seemed to be a correlation between immigration and low wages. Why you didn't even touch this topic? That's a good question. I think a large body of literature has looked into this. And my reading is that it finds relatively mixed impact of immigration on wages. And what I mean by mixed is relatively small. So it would have a very hard time explaining, for instance, the magnitudes of the wage changes that we are actually talking about most directly. And this is this played an important role. I actually really took that idea very seriously. And we tried to look at that in the more recent period when we actually saw this unexpected compression and wages occur. And it was very hard to it's very hard to actually correlate that even in time series, because if you look between 2016 and the present day, you have all kinds of huge increases and total shutdowns that happen. And the path of the wage compression that happens in this period really concentrated in these two, three years, that doesn't correlate well at all with time series of immigration. That is not dispositive. I think it's important thing to understand and study better. But it gave me enough pause that I think we have lots of levers to think about and work with. At the same time, obviously, we are seeing some very serious changes in immigration policies. What sort of impact this has remains to be seen. What I can tell you is that in the last year, for instance, when we have seen very sharp reductions in immigration, it doesn't. If you look at the wage growth, the wage growth at the bottom continues to be relatively similar to those at the top, but the extent of compression has certainly not increased over the last year, even as immigration grew a lot, which again goes to show that I would be guarded in drawing too much by any over broad time series over the last 40 years when it comes to immigration and low wage outcomes. So there's a word you mentioned in the book, but you don't ever actually define what you mean by it. And we haven't addressed it here, so I thought I'd ask you. And that's the concept of fairness. What is fair to you and why does it matter? Yeah, that's a great question. So why have I not defined it is because it's very hard to define. And fundamentally, what I really mean by fairness is really nothing about what I personally think is fair. So what I try to really do is think about how is fairness really approached and thought about by people generally more broadly. So one thing, for instance, is what is seen as a, for example, a fair wage. Now, obviously, if you go ask people, people will have different opinions. However, it is the case that if you ask people, is particular wage, for instance, fair or not, people have opinions on that. So my broad perspective is that as economists, we should respect the idea that there may be voter preferences over certain outcomes because they deem certain outcomes as fair or, and that while not dispositive about something, we have to do something because it's fair or not, means that it's something we should spend time thinking about how to actually design policies to help achieve it, at least being the fairness concerns playing one role in thinking about that design. One different interpretation, I think there are some elements that you bring to the table is that in the old days, there was more like internal fairness in firms. So that the janitors at Goldman Sachs were paid pretty well. And then what happened is that the janitors got our source back to your initial interest. And so they can be paid much, much less than the past because now all of a sudden they're not part of Goldman Sachs, but they're part of a janitorial firm. So at some level, is it fair that the janitor doing the same job is paying more because is cleaning up the floor at Goldman Sachs? Not clear to me. I think that these movements might have reallocated wages in a way that certainly is negative in terms of inequality. There's no doubt about this, but is it really unfair in that respect? So I think the issue of fairness as it affects firm wage setting is very interesting. So one of the things that there's a lot of evidence on, I've done some work on this myself, is how workers within a firm interpret wage differences and what is seen as a fair difference versus unfair difference. And what there's just a lot of work on this, clear is that if two people are doing similar work and they're paid differently, that is seen as unfair. Not maybe surprising, but that's a case. But also there's some degree to which if you are working the same company, like you said, there's a limit on how differently you can pay people. At least that seems to be the case. And as a result, companies have a lot of times outsourced workers, so they are getting perhaps lower wages, but they're not directly hired and working as subcontract employees. So is that fair? Well, on the one hand, if you have within janitorial wage differences, that could be deemed unfair. But then there's also within firm differences, right? That could be deemed unfair. Here's what we know. When we moved from having more within firm similarity in wages and blue collar workings work in relatively similar firms, overall, that meant both lower inequality and higher wages for blue collar workers. So that phishing of the workplace, where we have seen workers increasingly segregated in different types of companies, depending on if they're blue collar, white collar, has overall made it difficult for a bunch of workers to really have what in economics we call rent sharing. So being able to actually gain from having some degree of higher productivity. Now, it's true that rent sharing can increase dispersion of wages between janitors, but it also means the average janitorial wage is higher from that. And that actually ends up mattering, empirically speaking, quite a bit more than the fact that janitorial, within janitorial wage differences, may be somewhat higher. If you're enjoying the discussions Luigi and I have on this show, there's another University of Chicago podcast network show you should check out. It's called Entitled. International lawyers Claudia Flores and Tom Ginsburg have traveled the world getting into the weeds of global human rights debates. Unentitled, they use their expertise to explore the stories and the thorny questions around why rights matter and what's the matter with rights. Subscribe to Entitled, part of the award-winning University of Chicago podcast network. I thought that the richness of the analysis and the breadth was quite interesting and I found them fairly balanced in these summaries. It was not too partisan. What do you mean by balanced and where would you have seen partisanship? I thought he was very data-driven as well, but I'm not sure I would know where partisanship would show up in this discussion. So, for example, the part where I thought he was a bit partisan is in excluding immigration completely from the discussion. And his answer to my question was a pretty good one. And it says it is true the literature on immigration is more controversial. I fear that the data are terrible because one important part is illegal immigration and we don't have very good data on illegal immigration. It's new in the pandemic. A lot of illegal immigrants in the big cities went home because if you're a legal immigrant and you don't have work and you don't have social security, how can you survive? Right? And so that's the reason why immediately after the pandemic, I remember going to Boston and there was a Starbucks in Canada Square, which is one of the richest places on earth. There was closing at 3 p.m. for lack of personnel. That was shocking. And then all of a sudden, the personnel reappeared. That coincided with a massive inflow of immigration. So something was going on, but I don't think that the immigration is terrible for wages. I don't think there is evidence of that type. However, the vast majority of economists want to claim that there's no impact on wages whatsoever, which defies a bit gravity and says it is true that when you add labor force, you also add demand. But if you have more workers searching, it takes longer to search and people are less likely to search. And as a result, there is less competition effect that dries up wages. Yeah. The more you think about it, the more obvious it is that there are all these frictions that would impact the labor market. Right? And so that to me, I think is the biggest transformation in the way I think before reading his book and talking to him. And then afterwards, not just that I'm a lot more knowledgeable, but also that I think I would never think of the labor market in purely simplistic economic terms again. Does that make sense? I don't mean that economists are simplistic, by the way, but just that it is so multifactorial. No, I think that you're right. But economists started with a simpler model. I think that that's what you do when you start. You start with a simpler model and then you introduce some frictions. And surprisingly, economists stay longer than was reasonable with this simplistic view. To what extent the persistence of this assumption is, to some extent, serving some vested interests? Because clearly, under the assumption of perfect competition, any restriction that you impose is very negative. So it's very easy to say you should put no restrictions. And the alternative model, you can have a lot of benefits of introducing, for example, a minimum wage. Yeah. It is in keeping with some of the other discussions we've had on this podcast recently about capitalism being created by the state. And this book is in a way a furtherance of that argument because it shows how policy choices shape the labor market and in so doing, shape capitalism itself. And so the idea that the state should just be hands off or that policymakers should be hands off because the whole model works in the state of perfect competition is just obviously not true, as it is not true more broadly. And I've been thinking about out of all the jobs created last year, very few jobs were created, but 80,000 of them were in healthcare. And so if that's the direction of our labor market, then we have to start thinking about how we make healthcare a good job, right? Because otherwise, more and more jobs risk becoming not good jobs. And these are policy choices. They're not just to the free hand of the market be damned, right? Yeah, absolutely. Also because especially in healthcare, the government plays a disproportionate role because a lot of your compensation is driven by Medicare reimbursement and what you are authorized to do and what you're not authorized to do. So if you are registered nurse, you can do certain things, but not certain others, you need a doctor to do certain others. This is clearly not said by the market, but it's said by regulation. Right, very clearly. Are there any of his, I'm not going to, policy prescription is the word that's coming to mind, but they're not prescription maybe options. Any of the policy levers, that's that for better word, that he discusses, do any of them resonate with you more than any others? And do you think that he is artificially minimizing the role of the macroeconomic policy choices because that is so fraught? I don't know. I think that reading through the lines, there was an idea, but he doesn't push it and it didn't respond consistently to my prior to my questions. My idea is that there's kind of an externality in searching for a job because if I search for a job and you work with me, you're going to get a raise some way or another because if I get a raise, eventually probably you get a raise as well. And if I leave, probably the employer starts to panic that you'll leave as well. And so increase your wage. And so I do all this effort in this situation and you get part of the benefit. That's the ultimate definition on the externality. The fact that you need some level of inflation to get better wages is because inflation is a tax on not searching for a job, right? Because unless your wages index, if you just sit tight, your wage doesn't stay put. It goes down in real terms. And so the higher the inflation, the more I am designed to look for a job and the more you do as well. And so we help each other pushing up our wages, right? Because both of us decide to get up and look for a job. Now, can we find some less costly way to achieve the same result when I was going the direction, for example, of the mediator is not because necessarily, I think that there's a lot of money to be made, but maybe the government can play some role in providing information. In today's world, we have so much more data, including what people are paid in other jobs. So in 1980 was reasonable that you had no idea what Walmart was paying versus Target. But today is much harder. And maybe we should make it even easier for people to get this information. Yeah, maybe that's a pretty simple fix is just companies have to publish their salary data at all ranks, right? And then they would both be then that would create some of that old fashioned shame that, as you know, is my my sticking point these days. But that would also create transparency for workers to be able to know what they couldn't should be getting paid. I didn't think though, on that note, I did think he shied away from my question about fairness, because I appreciate his answer that it's very, very difficult to define. But I did want to hear an answer from him as to what it actually was, because I'm in search of that too. But I guess there are multiplicity of ways to think about it. Yeah, and to be fair, I think that I to be fair, pun intended, I doubled down with the example of the janitor of goldman, because honestly, what what is fairness in that particular case is very dependent on the starting points. Yeah, it's really it was I thought that was a really fascinating question. Should the janitor at Goldman salary be fair in the context of other workers at Goldman Sachs or should the janitors salary at Goldman be just be seen as fair based on salaries of janitors everywhere? And if everywhere is it everywhere in Manhattan? Is it everywhere as a national index? What's the everywhere? Right? And so this question of fairness does get really, really complicated really quickly. Yeah, and the other point that I wish you'd discuss a little bit more is the geographic evaluation, because he's very much in favor of some form of negotiated wages. But this works well in areas that are fairly homogeneous. The moment you have a lot of heterogeneity, then I think you do end up creating distortions that are pretty expensive in my view. Yeah, yeah, maybe fairness is best described as being like pornography, right? You know when you see it. And right now, everybody knows that what they see isn't fair. And that in and of itself is a problem. Capital isn't is a podcast from the Stieglitz Center and the University Chicago podcast network in collaboration with the Chicago booth review. If you haven't yet, you can now find our podcast as a video on YouTube. Don't forget to subscribe and leave a review wherever you get your podcasts. The show is produced by me, Matt Hodepp and Brittany Broders with production assistants for Mandy Nazaro, Matt Lucky, Sebastian Burka, Julie Preps and Andy Shee. The podcast is partially supported by a generous contribution from Luis Mounis and Cristani Medellus Mounis. We are grateful for their commitment to advancing the thoughtful dialogue and scholarly engagement on our show. If you'd like to take the conversation further, also check out Promarket.org, a publication of the Stiegler Center, and subscribe to our newsletter. Sign up at chicagobooth.edu slash Stiegler.