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Home Publications Blogs Beat the Press Casey Mulligan and a Trip to the Supply Side

Casey Mulligan and a Trip to the Supply Side

Friday, 05 October 2012 05:27

Casey Mulligan takes another shot at explaining the downturn as a decision by millions of people to stay at home and collect government benefits (joining the 47 percent) rather than work, in response to the increased generosity of programs like unemployment insurance and food stamps under the Bush and Obama administration. I don't have time to deal with all the points that Mulligan raises, but it is worth focusing on one implication of his story.

Not everyone was in a position to gain from these benefits. For example, young workers just entering the labor force with no work history would not be eligible for unemployment insurance. Also, if they have no children they will probably not eligible for food stamps or other government benefits. In other words, this group of workers would not have seen any increased disincentive to work as a result of any changes in benefits over the last 5 years.

For these workers the increase in benefits for other workers would imply somewhat of a bonanza in Mulligan's world. It would effectively pull many of their competitors out of the labor force. Think of a situation where your employer just offered a very generous early retirement plan to everyone who had more seniority to you at your workplace. With these people out of the way, there will be great opportunities for promotions and pay increases.

The same would situation would exist if we believe Mulligan's supply-side theory. This should mean that workers who stay in the workforce have much lower unemployment rates that we would have otherwise expected (i.e. lower than their 2007 levels) and higher wages. I haven't looked closely at the data, but this doesn't seem to fit the facts. The sharpest rise in unemployment rates or fall in employment rates has been among the young workers who are likely not eligible for the benefits that have become more generous. (The minimum wage story won't help here, their employment rates have not risen as the its real value was eroded inflation.) In other words, this trip to the supply side again looks like a dead end.


Comments (10)Add Comment
minimum wage story
written by pete, October 05, 2012 10:31
Actually the minimum wage, which clearly impacts unskilled younger workers, was raised about 20% during this recession. The last time I looked we have not had a 20% price inflation during this recession.
Last Minimum Wage Hike Was In July of 2009
written by Dean, October 05, 2012 12:07
The last phase of the minimum wage hike Congress passed in 2007 took effect in July of 2009. Since then inflation would have eroded its real value by around 7.0 percent. That would take it back to roughly the July 2008 level, which preceded any big runup in teen unemployment.
written by f.fursty, October 05, 2012 1:54
You're right, of course, but is it worth the effort to go into such detail to show the logical fallacies of Mulligan's mustings?

Mulligan lives in an alternate universe where people love being unemployed, living fat off the government hogg, cashing in those incredibly generous welfare checks, going out to fancy meals and paying the bill with their ebt cards before going home to their fancy condos with their flat screen plasma tv's. All paid for of course by us hardworking taxpayers.

For someone who lives in this world, do your arguments have any purchase?
written by urban legend, October 05, 2012 9:35
How much more generous did these benefits become since a few million of Mulligan's lazy bastards were selfish enough to take jobs and bring the unemployment rate down to 3.7%?

Is this clown worth all this effort? His argument is absurd on its face.
written by sherparick, October 05, 2012 11:18
I must admit I tried to follow Professor's Mulligan's word salad, especially his use of a chart that was very hard to decipher. His main argument appears to be that since the working group over age has increased employment over the last five years, that shows that the fall of employment in other age groups is the result of extended unemployment, COBRA benefits, and food stamps. As you point out for teenagers and the working group under age 26, who have never been employed, or not employed long enough to earn unemployment benefits, and who do not have children, this does not even work as correlation. I did not see much response when his blog appeared and he seems to have a book coming out which I am sure Austrians and neo-classicals will celebrate and will be the justification of the Romney/Ryan administration to cut those benefits.
Go up Minimum Wage, Go!
written by Calgacus, October 07, 2012 2:58
Pete: Actually the minimum wage, which clearly impacts unskilled younger workers, was raised about 20% during this recession. The last time I looked we have not had a 20% price inflation during this recession.

SO what? Yes, the minimum wage clearly impacts unskilled younger workers - for the good! A minimum wage hike right now would probably INCREASE employment, LOWER unemployment. Yes, that doesn't make sense from a neoclassical POV. So what? Neoclassical economics is practically worthless for the real world. (The only time it begins to make sense is after you've applied sensible Keynesian economics!)

Minimum wage workers would spend their new money, on other, largely minimum wage workers' employment. Pure win. Workers spend what they get, capitalists get what they spend. So more workers make more money. Capitalists are no worse off, probably better off in a stabler economy. A higher minimum wage can allow a given amount of deficit spending to sustain a higher level of employment. Money. is. not. a. commodity. Money is not a (dilutable) thing. Money is a relationship. A form of debt.
well it sure didn't work this time, 40% increase since 2005...and???
written by pete, October 07, 2012 11:13
Its not neoclassical crap...its ask the manager of a landscaping company or other minimum wage hirer how they would react to having to pay $2 more an hour....the answer will be clear....Now maybe the German model, where a morass of regulations forces the government to actually pay firms to hire workers who would otherwise be unemployed makes some sense. But not raising the wage above some unskilled workers marginal value of product.
Mulligan responds at his blog
written by TGGP, October 07, 2012 6:41
I basically agree with Scott Sumner's take (decisions at the Fed resulted in sub-normal NGDP growth, which combined with sticky wages to create unemployment), but figured I should link to Mulligan's response:

Since I'm only allowed to post one link, I'll just copy the text of his follow-up post:
"Dean Baker claims today that people without children are unlikely to get food stamps:

"if they have no children they will probably not [be] eligible for food stamps or other government benefits."

I'm not sure what data he's using. Using the USDA's quality control files provided by Mathematica Policy Research, I found that over 5 million non-elderly, non-disabled adults without children were participating in the food stamp program by mid-2010, up from 2 million before the recession began.

Perhaps Dr. Baker forgot how the Obama administration stopped requiring Able-Bodied Adults Without Dependents (USDA officials call them ABAWDs) to be employed if they were receiving food stamps."
The one link got shortened
written by TGGP, October 07, 2012 6:48
That first link should go here.
That link got removed too!
written by TGGP, October 07, 2012 6:52

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.