An Economist’s Quest to Solve America’s Wage Problem
Eventually, wealthy and liberal Harvard joined the cost-cutting trend. Looking back, Dube said the campaign for a living wage served, in some ways, as a microcosm of the broader struggle over wages and living standards that has engulfed this country over the past half-century. In his book, he writes, “many workers and middle-class Americans have received lower wages than they should be, even as our society has become more prosperous.” He continues: “My goal is to show you why – and, more importantly, how – we can change the job market so that it works better for all of us. Even in more normal times, this would be a noble goal. At a time when AI threatens to cause an unprecedented wave of disruption in the world of work, this initiative seems doubly ambitious. But Dubé does not let himself be discouraged. “I’m not saying I know exactly what’s going to happen,” he replied when I asked him about the impact of AI. “But what I’m proposing is a set of tools that can help us adapt to future crises, whatever they may be.”
These tools can be divided into three categories. At the local (“micro”) level, Dubé emphasizes the importance of organizing campaigns and other efforts to pressure employers to pay decent wages. Even if these initiatives are not entirely successful, they can encourage companies to raise wages to try to counter them, he says. (He cites Amazon and Walmart as examples.) In some circumstances, moral suasion can also be effective. After four years, the Harvard Living Wage campaign resulted in a new labor contract that increased wages for janitors employed by the university and demanded comparable wages for outsourced workers.
At the level of the entire economy (“macro”), Dubé underlines the importance of maintaining full employment. When workers are scarce, companies must offer higher wages to attract and retain them. Since the 1970s, Dubé points out, the only periods during which the incomes of low- and middle-income workers have experienced notable growth have been the late 1990s and (putting aside the COVID-19 pandemic) between 2018 and 2024. During these two periods, the unemployment rate fell below four percent. In the US system, the Federal Reserve has the primary responsibility for ensuring that the maximum employment rate declines, but it also has a mandate to contain inflation. Dube welcomes the Fed’s increased willingness over the past decade to keep interest rates low, even as unemployment falls to low levels. He writes that “accommodative monetary policy that does not prematurely stifle growth is essential to supporting recoveries” and promoting shared prosperity.
Dube is best known for his research on minimum wage laws. Nationally, the minimum wage has been stuck at a paltry $7.25 an hour since 2009. But more than thirty cities and states have introduced higher minimums, and at least two of them – Seattle and Washington – set them above twenty dollars. Dube’s own work, as well as the findings of other studies he details, indicates that increasing minimum wage laws are effective in raising wages for low-wage workers, while having little impact on employment levels — findings that contradict the warnings of conservative business groups and economists. Dube admits that raising the minimum wage above a certain threshold could have a negative impact on hiring. Based on a review of recent studies, he suggests setting it at two-thirds of the local median salary. This would translate to $12.73 per hour in Mississippi, where the federal minimum wage of $7.25 currently applies, and $22.64 in Maryland, where the state minimum wage is fifteen dollars.
Minimum wage laws are examples of mid-level, or “meso,” interventions, the third key in Dube’s toolbox. To increase incomes further up the pay scale, he also advocates the introduction of sector-wide pay standards. In some parts of Europe, notably France and Germany, wage negotiations between employers and unions often take place at the sectoral level rather than at the individual company level, and collective agreements set pay levels and working conditions for entire sectors. In Australia, a government-appointed Fair Work Commission sets minimum wage levels for many sectors, including retail, hospitality and healthcare.
Could a similar approach work in the United States? Dube discusses some recent initiatives in this direction. In California in 2023, a lengthy strike by health care workers at Kaiser Permanente ended with the company agreeing to introduce a minimum hourly wage of twenty-five dollars by 2026. Shortly afterward, Governor Gavin Newsom signed a law extending this goal to most health care workers in the state. That same year, California created a Fast Food Council and gave it the power to raise the minimum wage at fast food chains to twenty dollars an hour. Elsewhere, a 2023 Minnesota law created an official wage board for the state’s nursing homes. The following year, the new council, which included workers, employers and government officials, set a series of wage floors that would take effect by 2027: $28.50 an hour for registered nurses, $24 for certified nursing assistants and $20.50 for other workers, including contract employees. Dube sees the possibility of extending this approach to the gig economy. He notes that in Massachusetts, the state has established an income floor of $32.50 an hour for Uber and Lyft drivers.
