- progressive political activist
- Better Capitalism
Nick Hanauer and his wife are signers of the charitable Giving Pledge, meaning that their combined net worth is over $1 billion. He's also one of the most vocal champions for raising the minimum wage across the United States.
As the Seattle-based investor explained it to Business Insider in a recent interview, it's a matter of wanting the system to work better for everyone. "I want to hold capitalism to a high standard," he said. And part of that, Hanauer said, is shedding the conventional ideas that raising the minimum wage kills jobs. "That critique is just nonsense," he said.
Hanauer made his money from both an early stake in Amazon and the $6.4 billion sale of his online advertising company to Microsoft in 2007, and he didn't waste time using his newfound wealth and influence to push for the progressive politics he had long been passionate about.
A turning point, he told me, came shortly before the financial crisis, when he studied the distribution in the IRS tax table. This led him to studying wealth and income inequality in the United States. "I was like, 'OK, that's not going to work out for anybody!' That is not going to work out for anybody."
Hanauer built a public persona outside of his venture capital firm Second Ave Partners with books like "The Gardens of Democracy," coauthored with Eric Liu, and essays with dramatic titles such as "The Pitchforks are Coming ... for us Plutocrats."
Aside from writing, he actively campaigned for a $15 minimum wage in his hometown of Seattle, a movement that successfully led to passing a bill that will gradually increase the minimum wage to $15 by 2021. (For context, the federal minimum wage is $7.25, but in 2018, 25 states and Washington, DC pay more.)
Commentators at outlets like the neoliberal think tank the Adam Smith Institute and the conservative think tank the American Enterprise Institute publicly dismissed him as a fool who doesn't understand basic economics. Moody's economist Adam Ozimek called Hanauer "America's worst minimum wage pundit."
And then last year, the University of Washington published a study, partially funded by the city of Seattle, which concluded that after the minimum wage was raised to $13 there in 2016, employers cut hours by 9% and workers made an average of $125 less per month. Hanauer told me he found the report "ridiculous" and "manufactured," referring to the use of a synthetic control group used to argue that the minimum wage increase was more harmful than if the rate had stayed the same.
A higher minimum wage could benefit everyone over the long term
But a newer report, coming from economists working for the federal government, is in Hanauer's favor.
He pointed instead to a working paper published this past March by US Census Bureau economists Kevin Rinz and John Voorheis, in which they argue that raising the minimum wage increases earnings growth, and increasingly does so over the long-term, all without declines in employment. They further argued that a minimum wage increase of 37% (same as the one Seattle enacted) in the years leading up to the Great Recession would have slowed down the increasing degree of income inequality in the United States that has been occurring for the last 45 years.
Rinz and Voorheis had access to non-public data from the Social Security Administration and linked it with data from the Current Population Survey, giving them a rich source of otherwise inaccessible information to work with. They studied data from people aged 16-64, in the years 1991, 1994, and 1996 through 2013. They found evidence that a raise in the minimum wage reduced employee turnover, benefitting both the employee and employer.
For Hanauer, it was further proof that the marginal revenue productivity theory of wages — which states that efficient firms pay employees what they are objectively worth — "is a made-up concept that has nothing to do with how the economy actually works," he said.
"People are paid what they negotiate, not what they are worth," Hanauer said. "And in a world where most workers have no power and we have let corporate power consolidate more and more, there's no reason in the world for most businesses to give ordinary workers wage increases."
If higher minimum wages do benefit the working class, then, it should be embraced by the rest of society as well, Hanauer argued, because that will spur GDP growth. As he said, "when workers are paid more, they buy more stuff, and the people they buy stuff from have to hire more workers, which creates more demand."
"If you can't show that raising wages kills jobs, then why in the world wouldn't you want to raise wages, by a lot?" Hanauer said, referring to the anti-raising the minimum wage argument that has existed for decades, which he deems a myth. "In the absence of that claim there's no morally justified reason to keep wages low."