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  • Good morning, Hank. It's Tuesday. So you've started a lot of businesses: Crash Course,

  • Scishow, DFTBA Records, VidCon, the ceaseless juggernaut that is 2D Glasses. And Hank, your

  • companies employ dozens of people, none of whom work for the federally mandated minimum

  • wage of 7 dollars 25 cents per hour.

  • But Hank, let's imagine that your next project is a fast food restaurant, "Corndogs and Sodium".

  • What impact would raising the federal minimum wage have on you and your employees? At first

  • glance it seems like a no brainer: any minimum wage is terrible, both for "Corndogs and Sodium"

  • and for its employees. The Econ 101 argument goes like this: the free market is going to

  • set wages where they need to be, like if you want to pay 5 dollars an hour for "Corndogs

  • and Sodium" employees, but no one takes the job for 5 dollars an hour, you're gonna have

  • to pay more.

  • You'll increase your wages until you can attract the kind of employees that you need to, you

  • know, batter and fry and serve encased, cast-off pig meat. And we know that economies tend

  • to grow less when governments set and control prices, so higher minimum wages restrict economic

  • growth. Plus, unemployment will go up because of minimum wage is 10 dollars per hour, "Corndogs

  • and Sodium" could only afford to hire one person.

  • But if there was an unrestricted wage market, then they could attract two people who'd be

  • willing to work for 5 dollars an hour each. So in the end, setting a minimum wage is an

  • attempt to alleviate poverty, that actually increases it. However Hank, surprisingly enough,

  • it turns out that actual labour markets are a lot more complex than the models of labor

  • markets created by college freshmen.

  • This brings us to a famous study by two economists, David Card and Alan Kreuger. So in 1992, the

  • state of New Jersey raised its minimum wage 18.8 percent. Pennsylvania, right next door,

  • did not raise its minimum wage. Card and Krueger had the bright idea to go to the border of

  • New Jersey and Pennsylvania, and do employment surveys on either side of it. And what they

  • found is that restaurant employment in New Jersey actually increased when the minimum

  • wage went up. Since then, a bunch of other studies have confirmed Card and Krueger's

  • findings, while some have found that there actually are negative effects to employment

  • when you raise the minimum wage, although it's surprisingly and consistently mild.

  • Why? Well, a bunch of reasons. For one, the minimum wage is probably near where the market

  • would set it. But also, low-wage workers tend to spend most of their pay raises, which leads

  • to increased economic activity, which in turn leads to more jobs. And higher wages also

  • mean less turnover, which leads to lower costs of training, and hiring, and firing.

  • On the downside, higher wages are also associated with higher prices on goods and services that

  • rely on low-wage labor, which means that your corndogs, Hank, would probably be a little

  • bit more expensive. So Hank, the larger question is whether raising the minimum wage actually

  • reduces poverty. And on that front, there is growing consensus that at least in the

  • medium run, it does. A number of big recent studies have shown that raising the minimum

  • wage 10 percent reduces the number of people in poverty by about 2.5 percent.

  • Even many opponents of the minimum wage acknowledge this, but it's important to know that like,

  • that won't always work. At some point, raising the minimum wage will lead to inflation and

  • slower job creation. It's just not clear where that point is. But it's just as disingenuous

  • to call the minimum wage a "job-killer", as it is to say that the minimum wage is gonna

  • fix economic inequality. In short Hank, in economics, there's no such thing as a "free

  • lunch", but when it comes to reducing poverty without affecting employment, higher minimum

  • wages seem at least to be the cheapest lunch available.

  • But ultimately, Hank, now that I'm, I guess, an employer, I'm more persuaded by the personal

  • argument. We found that paying a living wage, which we would do even if we opened "Corndogs

  • and Sodium", leads to happier, more productive employees. Now, I know that's hard to quantify,

  • but it's also what's allowed VidCon and DFTBA Records to retain employees for years and

  • years, and grow sustainably.

  • Now Hank, obviously I am not an economist, although I did win a bronze medal in Economics

  • at the Alabama State Academic Decathlon tournament in 1993, but our strategy has worked out pretty

  • well for us so far, and it's also working in much larger companies like Costco. Hank,

  • the United States is a rich country, and I think there's a growing body of evidence that

  • the US doesn't benefit from having poor workers. Of course raising the minimum wage isn't gonna

  • fix that problem, but I hope at least we can begin to have a nuanced conversation about

  • the problem. Hank, I'll see you on Friday.

Good morning, Hank. It's Tuesday. So you've started a lot of businesses: Crash Course,

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