Below, Arindrajit Dube shares five key insights from his new book, The Wage Standard: What’s Wrong in the Labor Market and How to Fix It.
Arindrajit is Provost Professor of Economics at the University of Massachusetts Amherst, research associate at the National Bureau of Economic Research, and research fellow at the Institute for Labor in Germany.
What’s the big idea?
Wages are low for many workers not because they have to be, but because the rules and power dynamics of the labor market allow it—and those can be changed.
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1. You probably deserve a raise.
Over the last five decades, America has gotten a lot richer. Since 1980, our economy’s ability to produce goods and services per hour of work has risen by roughly 70 percent. But pay for the typical worker has risen by only about 20 percent. That gap isn’t just a statistical quirk. It’s the difference between an economy that could comfortably support higher wages and one where millions of people feel like they’re running in place.
You can see this clearly if you look across the pay scale. Since the late 1970s, pay at the top has pulled away, while wages in the middle have crept up only slowly and unevenly. A 90th-percentile worker—someone already doing quite well—has seen much larger gains than someone in the middle of the distribution, even though the economy grew enough to deliver raises across the board.
So, when I say, “You probably deserve a raise,” I’m not making a purely moral claim. I’m describing an economic fact about how we’ve divided the gains from growth. If productivity and profits have grown much faster than typical pay, that means there is genuine room in the economy for higher wages for ordinary workers.
The deeper question is: why didn’t those gains automatically show up in most people’s paychecks? The answer has to do with power, norms, and the rules we use to structure the job market. The problem isn’t that we’re too poor to pay people better. It’s that we haven’t chosen to let prosperity reach most people’s pay.
2. Why “just quit” doesn’t work.
You’ve probably heard some version of this: “If your job is so bad, why don’t you just quit?” In the textbook version of this question, that’s how things work. If an employer underpays you, you walk across the street to find a better offer. In reality, it’s rarely that simple. Surveys show that only a minority of workers say they could easily find another job with similar pay and benefits if they lost their current one.
Economists have studied what happens when companies change pay. When a firm raises wages, more people want to work there and fewer quit. When it holds down pay, quits rise—but modestly. A company that pays less doesn’t lose its entire workforce; it just faces higher turnover.
“A company that pays less doesn’t lose its entire workforce.”
Why don’t more people leave? Because job search takes time: finding openings, applying, interviewing, comparing offers—all while juggling a job, kids, a mortgage, or a commute. Jobs that look similar on paper may have different schedules, bosses, or implicit rules. You can see this play out in the data: FedEx and UPS have similar revenues per worker, yet 63 percent of UPS workers earn over $20 an hour compared to only 40 percent at FedEx. In a truly competitive market, that gap shouldn’t persist.
Economists call this situation monopsony power: employers have some power to set wages because workers can’t or won’t instantly bolt to the next best option. In a world of strong monopsony, there isn’t one magic market wage. There’s a wide range of possible pay that firms can choose from while retaining most of their staff. That hidden wiggle room is where norms, laws, and pressure can make a big difference.
3. The surprising winners of a hot labor market.
When people hear “strong economy,” they often picture stock prices or GDP headlines. But one of the most powerful things a hot economy does is it changes who has leverage in the job market.
Look at the late 1990s, and again the years just before and after the pandemic. In those periods, unemployment rates fell and stayed low. Employers suddenly had to compete harder for workers. And something remarkable happened: wage inequality, which had been rising for decades, started shrinking. Between 2019 and 2024, the gap between high-wage and low-wage workers, measured by the 90/10 wage ratio, fell by about 10 percent—wiping out roughly a third of the increase in wage inequality that had built up since 1980.
Those who gained the most were workers in the bottom half and the broad middle: home health aides, warehouse workers, restaurant staff, production workers. When jobs are plentiful and quits are high, employers must raise pay and improve conditions to hang onto people. Hot labor markets reduce employers’ monopsony power.
Now, tight labor markets don’t magically fix everything. But they do flip the script. Instead of workers anxiously chasing scarce jobs, employers are the ones chasing scarce workers. That shift in worker leverage shows up as faster wage growth exactly where it’s been missing for so long. Full employment, in other words, isn’t just a macroeconomic goal. It’s one of the most effective tools for rebuilding fair wage distribution.
4. How wage floors can lift typical workers’ pay.
Consider two fast-food workers: one in Tucson, Arizona, and one in San Antonio, Texas. These are cities with similar living costs and similar overall wages. Yet the typical fast-food worker in Tucson earns around 15 percent more—a gap that adds up to almost $4,000 a year for a full-time worker. The difference? Arizona voters raised their state minimum wage. Texas stuck with the federal minimum of $7.25, unchanged since 2009. This tale of two cities shows that minimum wage policy directly shapes what low-wage workers take home.
“Minimum wage increases substantially raise pay for low-wage workers, while having modest or no detectable effects on employment.”
If you raise the wage floor, do companies stop hiring? A large body of research says no. Minimum wage increases substantially raise pay for low-wage workers, while having modest or no detectable effects on employment. Looking across nearly a hundred studies, when minimum wages boost pay by about 10 percent, employment falls by at most around one percent. Workers come out strongly ahead.
But minimum wages alone won’t rebuild the middle class. That’s where sectoral standards come in: wage boards and bargaining arrangements that set pay floors for entire industries or occupations. Recent examples—from Minnesota’s nursing-home wage board to California’s fast-food wage council—show how these bodies can establish higher baseline pay across thousands of workplaces at once.
Instead of asking every individual worker to bargain alone, we can raise the standards that apply to broad groups of jobs. Minimum wages, sectoral wage boards, and collective bargaining are different tools serving to rebuild a strong wage standard in the American economy.
5. We can choose a different future.
It’s easy to feel fatalistic about the economy. For most of our adult lives, the story has been rising inequality, stagnant middle-class wages, and a sense that the game is rigged. But none of this is carved in stone.
We’ve already started to see the wage standard being rebuilt. Tight labor markets have pushed up pay at the bottom and middle, reversing a chunk of the rise in wage inequality. Worker activism and public pressure helped persuade companies like Amazon, Walmart, and large banks to adopt higher internal pay floors, raising starting wages into the mid-teens and even low-twenties per hour. And unions, from the United Auto Workers to baristas and warehouse workers, have won high-profile victories that are spilling over to nonunion shops.
“Tight labor markets have pushed up pay at the bottom and middle, reversing a chunk of the rise in wage inequality.”
At the policy level, we’ve seen experiments with higher minimum wages, sector-wide wage boards, and new forms of collective bargaining, including for app-based drivers. States and cities aren’t waiting for Congress; they’re using the tools available to them to raise standards now.
The through-line here is agency. Our wage outcomes reflect choices about monetary policy and full employment, about labor law and antitrust, and about whether we tolerate or challenge low-wage business models. If we combine macro policy that keeps the job market tight with stronger wage-setting institutions and ongoing worker activism, we can turn today’s fragile gains into a durable era where rising wages are once again a normal part of economic progress.
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