PADDY HIRSCH, HOST:
This is THE INDICATOR FROM PLANET MONEY. I'm Paddy Hirsch. And today I'm taking questions - well, one question anyway. Ravon Gorgeous (ph), which is possibly the best name that I have actually ever heard - literally a beautiful name - Ravon wrote into us a few weeks ago, and he is on the phone now. Hi, Ravon.
RAVON GORGEOUS: Hey. How are you?
HIRSCH: Tell me what it is that you specifically want to know.
GORGEOUS: I have been wondering for a little bit about what is the greatest form or the best way to get paid, whether it be weekly, biweekly, the first and the 15, once a month, every day. I just don't know what motivates people more.
HIRSCH: Tell me about what it is that you do for work. I'm assuming that you do work because you're talking about getting paid. So...
GORGEOUS: Yes.
HIRSCH: Do you have a full-time job?
GORGEOUS: Yes, yes, a full-time job. My day-to-day job is helping people with their finances, whether it be a mortgage, an investment, savings account, helping their kids go to school, whatever it may be.
HIRSCH: OK, so you work - and so you work in, like, a retail bank.
GORGEOUS: Yes, retail bank, correct.
HIRSCH: OK, all right, excellent. This is a very subjective question. At least, the answer's a very subjective answer because the answer is always going to be it depends. Right?
GORGEOUS: Yes.
HIRSCH: It depends on what kind of person you are and how you budget. And I would have thought actually that as a bank employee, you'd probably be quite well set up to manage your money however it comes in.
GORGEOUS: Yes. Yes, you would think that. But sometimes (laughter) you just want to buy other things.
HIRSCH: I have to tell you, though, I think that this is actually kind of a moot question, though - you know, what's the best way to get paid - because unless you're a freelancer where you can make your own hours, or you own your own corporation and you can pay yourself, the fact is that you're going to get paid when your company wants to pay you. Right? And how often does your company pay you?
GORGEOUS: Biweekly.
HIRSCH: Biweekly. So you get paid twice a month.
GORGEOUS: Yes. Yes. Well, every other Friday.
HIRSCH: Right, well - every other Friday, right? So you're in great company. I did - again, I did a little research on this. It turns out that the Bureau of Labor Statistics actually does estimate this based on data generated by the monthly Current Employment Statistics survey. Now, the most recent digest I could get on this was dated 2014. But it said that most Americans do, like you, get paid - and like me, actually - get paid biweekly or twice a month.
GORGEOUS: I believe that.
HIRSCH: Yeah. I think that's - that seems right.
GORGEOUS: Yeah. I think it's probably, like, 80 percent of the people get paid probably biweekly.
HIRSCH: Anecdotally, that's the way it certainly feels.
GORGEOUS: Yeah.
HIRSCH: My question, though, is why is that? So today on THE INDICATOR FROM PLANET MONEY, the great pay cycle mystery.
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HIRSCH: Why do most Americans get paid twice a month? Why not weekly? That would make it easier for people like Ravon. Or why not monthly? Frankly, I think I'd prefer that. And I have all sorts of theories about this, but I really have no idea, which is why I have phoned a friend. Nelson Lichtenstein is professor of history at the University of California, Santa Barbara, and director of the Center for the Study of Work, Labor and Democracy. Professor, welcome.
NELSON LICHTENSTEIN: Glad to be here.
HIRSCH: So Ravon has a very interesting question here about why he gets paid - or the best way to get paid. And that's kind of led to a question that we're answering here or trying to answer here which is why everybody gets paid - most people in America get paid kind of twice a month or once every two weeks. Before we get into the reasons of why we get paid this way, could you tell us a little bit about the history of the way people get paid for the work that they do?
LICHTENSTEIN: Yes, of course. And in the agricultural era, when most people worked on farms, payment took place once a year. Now, and that would take place in agriculture. On ships at sea, I mean, the - you know, if you read your "Moby Dick" and your great sea tales, (laughter) I mean, the sailors might get paid once every two years, you know...
HIRSCH: (Laughter).
LICHTENSTEIN: ...When they finally brought in all the oil or finished the voyage. It could take a long time. Then they divide up the - what the ship had made. And before the rise of widespread checking and banks, you - typically people were paid once a week with a pay packet and were allowed a...
HIRSCH: Oh, so like, a weekly - like a - that would be paid on Friday, or Saturday or...?
LICHTENSTEIN: That's exactly when it was. It would be Saturday in the early afternoon because most people worked a five-and-a-half-day work week. The Saturday, you know, was the half-a-day Saturday. And this was true in many factories, offices, retail shops up to the 1930s. And the other thing that changed - it was this. In 1942, during the war, the government did something quite radical. It was going to have a payroll tax. When that happened, it - you know, pay every week with cash. Well, how are you going to collect that payroll tax? That made it a lot more difficult. So that, I think, had the effect of moving a lot of stuff to a check. So let's simplify this and have it every two weeks. For salaried workers, tended to be once a month.
HIRSCH: So this sort of move to the biweekly concept was really as a result of government regulation and tax law. That's interesting.
LICHTENSTEIN: Yeah. Yes, it was. Yeah.
HIRSCH: So we had workers getting paid once every two weeks and then salaried employees getting paid every month. But now we have - most salaried employees appear to get paid every two weeks now.
LICHTENSTEIN: I think that may be partly a result of - I mean, whether that's computers, and when the actual manpower, womanpower, required to do that kind of paperwork is reduced - so you can do it, you know, more frequently. And here, your caller, your - you know, how about every day? Well, that would not be impossible with - you know, if you had - sort of you walked into the office or the - wherever you're working with sort of a - some sort of electronic watch or something which recorded exactly (laughter) when you were there, and then it recorded when you left. And then instantly would appear in your bank account, you know, the amount of money. That could be the case. And, you know, maybe - I think it would not be costly given the nature, you know, when you - of our, you know, interconnected, web-based systems that we have today.
HIRSCH: So Ravon, would you be - would that interest you in getting paid every day?
GORGEOUS: Oh, yeah.
HIRSCH: Yeah?
GORGEOUS: Definitely. I'd be more motivated. I'd be at work earlier every day.
LICHTENSTEIN: OK (laughter).
HIRSCH: Well, professor, let me ask you this. Do you think that - I mean, you're a man who's studied the trajectory of the way pay has been distributed over the years. Do you think it's possible that we could, with technology, go to this kind of future that you've envisaged where you could theoretically get paid every day?
LICHTENSTEIN: Unfortunately, there are some firms out there which are pushing and are doing it and often in a very exploitative fashion. So for example, not the direct employer, but you have - we've had for many years payday lenders, which means people get advances on their paycheck, and then they have to pay exorbitant interest. They - now, I just - I have to say one bedrock thing. This would not - might not be quite so pressing an issue if we had higher wages. I mean, higher wages are a good thing, and they tend to take the pressure off. And as you know, a huge proportion of the American working population lives paycheck to paycheck. Well, that's not a recipe for getting a good night's sleep.
HIRSCH: So let me ask you, Ravon. Have we answered your question today?
GORGEOUS: Yeah. Yeah, you have.
HIRSCH: Excellent. Oh, I'm so pleased.
GORGEOUS: Yeah, I think you guys have. Yeah.
HIRSCH: I'm delighted. Well, Professor Lichtenstein, thank you for joining me today. Thank you for helping me with Ravon's question, which was kind of my question also. But I'm very grateful to you. Thank you for joining us.
LICHTENSTEIN: You're welcome indeed.
HIRSCH: Ravon, thank you for joining us as well. That's Ravon Gorgeous and Professor Nelson Lichtenstein of the University of Southern California, Santa Barbara. Thank you both.
GORGEOUS: Take care (laughter).
LICHTENSTEIN: Bye-bye.
GORGEOUS: Bye.
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