Disclaimer: I'm not an economist.
Ever since Obama's State of the Union address, minimum wage has gained spotlight in the press. Many are laying out the case for minimum wage increases, and many are laying out the case against.
By way of IACWE, I was introduced to a UM-Flint economics professor named Dr. Mark Perry. He has been making a case against increasing the minimum wage increase by writing on his blog hosted by the American Enterprise Institute, "one of the oldest and most influential of the pro-business right-wing think tanks."
Dr. Perry seems to be trying to make a name for himself as the leading intellectual in the fight against raising the minimum wage. He has written several posts against the minimum wage in the past week. After reading them, I'm left with a compelling feeling, not that he has made a good case against the minimum wage, but that he has in fact done a very poor job. Frankly, at putting forth an intellectual argument, he's terrible.
I'd like to start with this is a post from about a week ago: Let’s review the adverse effects of raising the minimum wage on teenagers when it increased 41% between 2007 and 2009
Now that Obama’s calling for a 24% increase in the minimum wage to $9 per hour, it might be instructive to review what happened the last time the minimum wage was increased – from $5.15 per hour in 2007 to $7.25 in 2009 (in three stages, see chart). Those most affected by increases in the minimum wage are the least skilled, least experienced, and least educated workers, i.e. teenage workers.Does anyone else feel something is a bit off about this article?
How about that time frame? Between 2007 and 2009? Anyone else know what else was going on during that time frame, that Mr. Perry fails to mention, not even once?
How about that we were going through a recession, one that we still haven't completely recovered from.
Go back and read this statement again: "Those most affected by increases in the minimum wage are the least skilled, least experienced, and least educated workers, i.e. teenage workers."
Only this time, replace increases in the minimum wage with recession. In fact, you can pretty much do that for the entire article.
Don't recessions also affect the least skilled, least experienced, and least educated more? What do you think the youth in the UK, Greece, and other countries, blame more for their unemployment rates? Minimum wage, or the fact that there's a recession going on?
From the US perspective, it makes sense that the recession is more to blame for the recent trend in youth unemployment. People across the board are losing their jobs, that means you have more qualified people applying for the jobs that they would normally feel overqualified for. They have more experience and education and a proven track record of performing at work, so employers will generally favor hiring experienced workers. So regardless of minimum wage or not, recessions will always hurt the least skilled, youngest workers the most. Even if the minimum wage was zero, and employers could afford to hire more workers as a result, that still doesn't address the issue of teenage and unskilled workers competing with more skilled and experienced workers because of the recession.
Mr. Perry doesn't mention any of this. The closest he comes is this: "Of course, the overall US jobless rate was increasing at the same time, from about 5% to 10%. Therefore, the graph attempts to better isolate the effects of the minimum wage increases between 2007 and 2009 on teenagers by plotting the difference between the teenage jobless rate and the overall jobless rate, i.e. “excess teen unemployment,” and the minimum wage."
So he acknowledges that the overall jobless rate was increasing as well, but then goes on ti graph the teenage jobless rate alone, aka, cherry-picking data.
If people are losing jobs across the board, they are more likely to go for jobs that would normally go to a teenager during normal economic times. Quick subjective check: the last time you ordered delivery food, how old was the driver? How about the last time you ordered coffee or went to a fast food restaurant? Chances are, at least one of those answers is: not a young person. In a normal economy, all three of those would generally be worked by the young.
If I was learning economics from this guy, I'd be feeling cheated right about now.
So what else has this so-called economist been writing?
Here's a post from 2/18: Even if minimum wage hikes don’t reduce employment, they still make many unskilled workers worse off
Already in the title, he's arguing from a defensive position. He'd like to argue that raising the minimum wage reduces employment, a basic argument in minimum wage economic theory. But that stance has been compromised, so now the argument he's building is that it's still worse for unskilled workers.
1. Fewer hours – Unskilled workers might still be employed following an increase in the minimum wage, but at a reduced number of hours. Full-time workers now become part-time workers, e.g. restaurant workers are now forced to work a split-shift (e.g. 11 a.m. – 2 p.m. and 5 p.m. – 8 p.m.). Therefore, we would expect a negative relationship between: a) increases in the minimum wage and b) the number of hours worked, which wouldn’t be reflected in teenage employment levels (the BLS counts workers as “employed” whether they work 1 hour or 50 hours per week) or the teenage jobless rates.That's a pretty basic argument. And there is evidence that employers already do this.
As an example, suppose an unskilled, entry-level teenage worker is earning the current hourly minimum wage of $7.25, works 40 hours per week and earns $290 per week. After the proposed increase to $9.00 per hour, the employer reduces the worker’s hours to 30 per week, and he or she earns $270 per week, less than before the minimum wage increased.
What he fails to mention is that doesn't make much sense logically for the employer. He would then need to hire another worker to fill those additional 10 hours, and at minimum wage, that means the employer would still be paying $360 in wages, whether he's employing one person to work those 40 hours or two people to fill those 40 hours. Only now, the employer has to pay the additional overhead of an additional employee, while still only getting the same amount of hours worked. It doesn't make sense that an employer would do that. Obviously, there is more to these decisions than just paid wages alone, but then, Perry should mention that in his analysis, which he doesn't.
2. Reduced benefits – Following minimum wage hikes, employers can adjust “total employee compensation” and offset higher monetary wages by reducing fringe benefits such as: a) no longer providing free or discounted uniforms and shifting the cost of uniforms to forcing employees, b) no longer providing free food or food discounts for restaurant employees, c) reducing or eliminating “employee discounts” on the employer’s merchandise, d) eliminating paid holidays, e) eliminating scholarship programs, f) eliminating group discounts available through large companies like McDonald’s, g) eliminating employer sponsored or subsidized health care benefits, h) reducing or eliminating company holiday parties and picnics, etc.This argument seems pretty ridiculous to me. It requires the assumptions:
a. Employees would be unwilling to work for a place that requires them to pay for their own uniforms
b. Employees would be willing to work for less money in return for free or discounted food/products
c. That an employer who can only afford to pay workers minimum wage offsets that by offering benefits such as scholarships and paid holidays that aren't legally mandated.
d. That these even count as "benefits." Framed in this way, they sound more like "shared cost burden" or "cost-cutting."
True, there are definitely employees who are willing to do this in exchange for employment. However, you can use the same logic to assume some potential job applicants would no longer find that job appealing. Less applicants mean less competition for the teenage/unskilled workers. So ultimately this isn't a good argument either.
What else does he use in this post? Oh, he only had those two reasons to explain how unskilled workers would be worse off if minimum wage were increased? He doesn't even qualify what he means by "worse off." Is an employee worse off working 30 hours for $270 than if he was working an additional 10 hours for only 20 bucks more? Maybe he can use that additional 10 hours to work at a 2nd job to make up for those lost wages. Or maybe he can use those 10 hours being a teenager.
Essentially, the thesis of his post, that unskilled workers are worse off when there is a minimum wage than when there isn't, is only based on his assumptions, and no actual evidence. So what if he doesn't provide empirical evidence to support his points?
How about because he uses the lack of evidence to attack his opponents in a followup post: A challenge to proponents of a minimum wage of $9 per hour – what theory or analysis justifies that specific wage?
Proponents of the minimum wage law support periodic increases of the minimum wage, e.g. to $9.00 per hour, but never seem to provide any justification or analysis that would support a position that $9.00 per hour is somehow optimal for society.First of all, let's get the straw man out of the way: supporters of raising the minimum wage don't advocate any single monetary figure based on empirical evidence alone. It's always based on political, societal, and economic factors, all together. Maybe we should raise the minimum wage to 10 instead of 9. Maybe we should even raise it to 18. Just because supporters use the $9 dollar figure does not mean they have qualified it as the ideal number; there are certainly political and other factors involved. It's a bizarre argument. Why are Republican's looking for $1 trillion in spending cuts? Why not $2 trillion or $10 trillion?
The argument he is using is utterly bizarre for another reason:
If there is no economic theory or logic or cost-benefit analysis that justifies $9.00 per hour as an optimal wage for unskilled, entry-level workers, which seems to be the case, then a $9.00 minimum wage is exposed as being totally arbitrary and random. Unless and until Obama and other proponents of a $9 per hour minimum wage can provide some analysis to show that $9 is optimal and maximizes the net benefits to unskilled workers, then it’s a policy that really can’t be taken seriously. Further, the minimum wage requires a costly regulatory mechanism that administers and enforces the government-mandated wage, which is a cost that needs to be considered.Does he really think there aren't "economic theories or logic" to support the argument for minimum wage? Does he really think there haven't been studies done? Or historical data?
"Further, the minimum wage requires a costly regulatory mechanism that administers and enforces the government-mandated wage, which is a cost that needs to be considered."
If you want to consider the cost of administering a minimum wage, why not also consider the cost of paying employees so few wages that they can't afford housing, transportation, health care, and child care? Why do you think that economic theory only supports your arguments?
Here's his argument again:
Increases in the minimum wage generate certain benefits (higher wages) for some workers, but generate costs (fewer entry-level jobs, fewer hours, fewer benefits, less-on-the-job training, reduced opportunities to acquire work skills, etc.) that outweigh the benefits, making unskilled workers as a group worse off on net from increases in the minimum wage. Further, a minimum wage of $0.00 per hour requires no regulatory mechanism and therefore no enforcement costs.That's the argument that he claims is supported by basic economic theory.
Bottom Line: A minimum wage of $0.00 is optimal because it generates net benefits to society that are greater than the net benefits of a mandated, artificially high minimum wage.
Here's an argument that supports the opposite, also using the same basic economic theories, which is says does not exist and is not possible:
Having no minimum wage generate certain benefits (afford to hire more employees) for some employers, but generate costs (employees who can't afford housing, health care, child care, transportation, can't afford to take time off from work, more reliance on social safety nets, who employers can threaten with easy termination because there's always someone they can hire for cheaper) that outweigh the benefits, making unskilled workers as a group worse off on net from having a minimum wage.
Bottom Line: A minimum wage of some sort is optimal because it generates net benefits to society that are greater than the net benefits of no required minimum wage.
How does an argument like that not follow the same basic economic theory that he himself used to justify his own stance?
This Dr. Perry is trying to build the case against raising the minimum wage from an economist's data-driven point of view. The problem is, he rarely demonstrates how the data supports his positions. When he does, as is the case with the first post, it is intellectually dishonest, plainly enough that even a non-expert can recognize it.
Part of me is afraid that more reputable news sources will lend an ear to people like this, based on their need to always balance an issue by reporting both sides. And his status as a professor will gain him additional influence, while his connections to a clearly partisan think tank obfuscated. But as Mr. Perry clearly shows, even someone like a professor is only human. We must always be able to see past a person's status, connections, and look critically at how his arguments actually stand based on their own merits. And in my opinion, Mr. Perry failed.
This is not a post to argue that economics professors aren't qualified to weigh in on economic issues. I understand the argument for tenure, that professors should feel free to argue their cases without fear of losing their jobs. As a current grad student, there have definitely been times when I have aspired to be in the position he currently enjoys.
However, when he argues from such a biased, plainly paid-for point of view, and does so in a way that is easily dismantled, his status as a professor does not entitle him to protection from criticism, anymore than Paul Krugman's critics shy away from attacking him. A shill is a shill.