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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.

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.

That's a pretty basic argument. And there is evidence that employers already do this.

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.

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.

That's the argument that he claims is supported by basic economic theory.
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.

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Comment Preferences

  •  Would it surprise you to learn... (1+ / 0-)
    Recommended by:
    VA Breeze

    ...there's a Koch brother's connection there?

    Yesterday, ThinkProgress highlighted reports from the St. Petersburg Times and the Tallahassee Democrat regarding a Koch-funded economics department at Florida State University (FSU). FSU had accepted a $1.5 million grant from a foundation controlled by petrochemical billionaire Charles Koch on the condition that Koch’s operatives would have a free hand in selecting professors and approving publications
    As reporter Kris Hundley notes, Koch virtually owns much of George Mason University, another public university, through grants and direct control over think tanks within the school.
    http://thinkprogress.org/...
    Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University and in addition, and has an MBA degree in finance from The University of Minnesota.
    http://www.umflint.edu/...

    "No one life is more important than another. No one voice is more valid than another. Each life is a treasure. Each voice deserves to be heard." Patriot Daily News Clearinghouse & Onomastic

    by Catte Nappe on Thu Feb 21, 2013 at 09:07:26 AM PST

    •  Would it surprise anyone? (1+ / 0-)
      Recommended by:
      Catte Nappe

      I have a somewhat tenuous relationship with UM-Flint, in that my alma mater is in Flint, Michigan's my home state, and many of my relatives are UM alums. I'd like to not think less of the institution, but it's hard. I'm not afraid to say that some professors really don't deserve that title.

  •  The "free market" intellectual arguement is simple (1+ / 0-)
    Recommended by:
    Sparhawk

    I personally believe that the minimum wage is an important element of our societal safety net.

    Free market economists would argue that the supply and demand for labor, in any metro area, is a nearly perfect market with tens of thousands of potential employees and thousands of employers. With no single party having the economic leverage to dictate wages a market clearing price for each job will be set by what an employer is willing to offer and a potential employee is willing to accept. To the extent that the minimum wage is set above the market clearing price there will be lower employment, a substitution of capital for labor, or a transfer from other employees or owners to the minimum wage worker.

    In their hearts most Republican politicians do not support a minimum wage, but won't say that in public because it would be damaging, even to their base. What they do is keep the minimum wage as low as possible, hoping that eventually the market clearing price for labor will be higher than the minimum wage, thereby making the statutory minimum moot.  

    "let's talk about that"

    by VClib on Thu Feb 21, 2013 at 09:16:53 AM PST

    •  We've seen what "free markets" are like (0+ / 0-)

      In the real world, they tend to always lead to a large permanent poverty class.

    •  High cost of living cities effectively have a very (1+ / 0-)
      Recommended by:
      VClib

      low minimum wage if one considers the standard of living the minimum wage implies in the city.

      A person making  the current minimum wage of $7.25/hr in Tulsa, OK would need to make $17.62 in New York City to have the same purchasing power.  Meanwhile, the current minimum wage in NYC is only $7.25/hr - the Federal minimum wage.  For all practical purposes, NYC does not have a meaningful minimum wage.   The cost of living between these two cities are so large that a single minimum wage for these two cities cannot make sense.  Minimum wage laws need to be  set at different rates to reflect their cost of living.

      The major failure of minimum wage laws are in the high cost of living cities - which ironically are run mainly by Democrats at the local and State level (NYC, LA, San Francisco, Chicago, Washington DC, Boston, etc.)

      Efforts to increase minimum wages should focus on these high cost of living cities, as this is where the problem is by far most severe and the prospects for change are best.

      To compare cost of living in different cities see  http://money.cnn.com/...

      The most important way to protect the environment is not to have more than one child.

      by nextstep on Thu Feb 21, 2013 at 11:37:05 AM PST

      [ Parent ]

      •  Many Dems agree with you (0+ / 0-)

        and that's why we have on your chart states and some cities with minimum wage laws at rates significantly higher than the national minimum. I agree the focus should be local and state level. The GOP won't allow a national minimum wage increase so the focus should shift to where increases are most needed, and there is the political will to raise them.

        "let's talk about that"

        by VClib on Thu Feb 21, 2013 at 02:27:58 PM PST

        [ Parent ]

  •  Analyses based on speculation (0+ / 0-)

    There's a lot of 'ought's and 'should's and 'might's and fabricated cause-and-effect in Mr Perry's arguments.  All of which may come to fruition or not.  As opposed to the fact that by raising the minimum wage, people would be paid more, have more money to spend, and most likely will spend it.  I see nothing wrong with that scenario.

  •  Minimum Wage Laws should be at state and local (0+ / 0-)

    level, not Federal. as the cost of living varies widely in the US.

    A person making  the current minimum wage of $7.25/hr in Tulsa, OK would need to make $17.62 in New York City to have the same purchasing power.  Meanwhile, the current minimum wage in NYC is only $7.25/hr - the Federal minimum wage.  For all practical purposes, NYC does not have a meaningful minimum wage.  The problem of too low a minimum wage is far, far, far more severe in high cost of living cities than in low cost of living places such as Tulsa.  Raising the minimum wage to $9/hr does little to fix the grossly too low minimum wage in cities such as NYC.

    The highest cost of living cities in the US are overwhelmingly  run by Democrats at the local and state level ( NYC, LA, Boston, San Francisco, Chicago, etc.).  Democrats need to be putting their energies behind matching even the current minimum wage (even better with a $9/hr) on a cost of living adjusted basis at the local and state level - if they really care about those most severely hurt by a too low minimum wage.

    The most important way to protect the environment is not to have more than one child.

    by nextstep on Thu Feb 21, 2013 at 10:59:54 AM PST

  •  Work to be done (0+ / 0-)

    The assumption I see in the minimum wage argument is that the employer just has people around doing nothing. If you have work to be done to keep your customers and you must pay another less than $2 an hour to do it you will. The next time you bid a job you charge a little more or take a smaller profit or do the work instead of having an employee do it.

    Will a lawn service customer buy his own lawn mowing equipment, maintain it and do the mowing himself because the bill goes up $2 for each hour of mowing? Will he just stop mowing until neighbors force him? One place I lived the landlord stopped maintaining the property so the city did and put the charges on his property tax bill. My phone call suggesting the presence of rats near the overflowing trash dumpster helped the landlord find his wallet for the services included in the rental agreement.

    After the trash was picked up by the city he paid the waste hauler in a big hurry

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