The minimum wage, part 2: Casey Mulligan fail edition; or, the $100 minimum wage gambit

I wanted to make a few points about this awful piece by economist Casey Mulligan, in which Mulligan not only opposes a minimum wage hike, but actively supports reducing the minimum wage. And this in spite of the fact that, as he admits, the “least skilled workers” in our economy are continuing to “see their wages fall over time.”

That a right-wing University of Chicago economics professor opposes raising the minimum wage is hardly a news flash. But what I do strongly object to is the extremely misleading way Mulligan characterizes the evidence. He writes:

News organizations have repeatedly noted that economists do not agree on the employment effects of historical minimum-wage changes (the more recent federal changes in 2007, 2008 and 2009 have not yet been studied enough for us to agree or disagree on results specific to those episodes) and do not agree on whether minimum wage increases confer benefits on the poor.

The vague suggestion that perhaps that minimum wage really does not “confer benefits on the poor” teeters dangerously close to the “opinions on the shape of the earth differ” school of journalism. Let’s talk specifics here. The impact of the minimum wage, and particularly the impact of the minimum wage on employment, is, as economist John Schmitt has noted, one of the most studied topics in all of economics. The results are most definitely in, and contrary to the clear impression Mulligan is trying to give, there is little reason to believe that the outcome from the years 2007 through 2009 would be any different than the results we have from any other year before that. And contrary to the neoclassical dogma so beloved by University of Chicago types, the overwhelming body of the most rigorous empirical evidence shows little or no relationship between employment and the minimum wage. When there does seem to be a negative relationship, it tends to be extremely small.

A review of the literature, and a summary of various theories as to why Econ 101 minimum wage models don’t turn out to hold up in the real world, can be found in Schmitt’s excellent recent report for the Center for Economic and Policy Research. The reasons are complicated, and there are competing hypotheses, but basically what it comes down to is that the many of the assumptions required for perfect competition in the labor market don’t hold. I know, I know — try to recover from the shock.

My favorite theory remains the monopsony model, which holds that, contrary to the perfect competition model, labor markets are not frictionless. Significant frictions occur when firms have to devote resources to recruiting workers. But if firms raise wages as a result of a minimum wage increase, turnover is reduced, and firms save money on training and recruiting costs. Contrary to the predictions of the neoclassical model, employment levels remain more or less constan — no one is fired.

As I’ve established, Mulligan is extremely disingenuous in his presentation of the evidence on the minimum wage. But his most flat-out ridiculous moment comes when he pulls out the old “$100 minimum wage” canard. He notes that no one would call for a $100 minimum wage “because at that point the damage would far outweigh the benefits.” Oh noes! We command-and-control lefties are so busted! We admit that we wouldn’t support a $100 minimum wage, because that would have a negative impact on the economy. So the logical conclusion is that we shouldn’t support any minimum wage — after all, we’ve already admitted that a $100 minimum wage wage would hurt the economy, so . . . Dash it all, Professor Mulligan and your steel trap mind, you! If it weren’t for those meddling University of Chicago economists . . .

Seriously, I am so over those bleedin’ eejit minimum wage debate moves like the $100 minimum wage gambit. In fact, I am so over debates on the minimum wage, period. The research about the results of the minimum wage is more or less conclusive. Grim reports continue to come in over the transom about the continuing deterioration of American workers’ wages. Everyone in America already knows what they think about the minimum wage, and those of us who like to argue about these things have made the same tired arguments about it time and again.

One of the great virtues of President Obama’s recent call to raise the minimum wage is that, in his version, the minimum wage would be pegged to automatically rise with inflation. That means, if we passed it, it would automatically go up, and then we might never have to revisit these debates or even think about the bloody thing again. While I think a $9 minimum is too low and we should shoot for more, the idea of never again having to address the inane arguments of minimum wage opponents definitely has its appeal. Seriously.

Kathleen Geier

Kathleen Geier is a writer and public policy researcher who lives in Chicago. She blogs at Inequality Matters. Find her on Twitter: @Kathy_Gee