JUNE 23, 2012
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I LONG AGO GAVE UP trying to figure out who the “real” Mitt Romney is, but among the various claimants to that title is a guy who would like to index the minimum wage to inflation. I like this Mitt, because raising the minimum wage would provide a useful jolt of stimulus right now to the faltering recovery, and indexing it to inflation would keep us from waiting too long before we raised it again.
“The minimum wage is important to our economy,” Romney’s campaign literature said in 2002 when he ran for Massachusetts governor, “and Mitt Romney supports minimum wage increases, at least in line with inflation” (italics mine). This past January, while campaigning in New Hampshire, Romney said, “My view has been to allow the minimum wage to rise with the [Consumer Price Index] or with another index, so that it adjusts automatically over time.” Although Romney no longer seemed to contemplate minimum-wage increases in excess of the inflation rate, he still backed automatic increases tied to inflation. For Romney to maintain—over ten years!—such consistency on a topic as controversial as the minimum wage was unusual, to say the least.
It couldn’t last, and it didn’t. Newt Gingrich, the Club For Growth, and The Wall Street Journal editorial page all hammered Romney for reiterating his former position, saying it would kill jobs. By March, Romney was telling CNBC’s Larry Kudlow that, when the Democratic Massachusetts legislature had tried to increase the state minimum wage, he’d vetoed it. (He didn’t mention that he’d tried to substitute a smaller increase or that his veto was subsequently overridden.) Romney also told Kudlow that “right now there’s probably not a need to raise the minimum wage.”
The press interpreted this as a flip-flop, which wasn’t quite right. It was a neutering. Romney said he still believed that the minimum wage ought to be indexed. But he noted that inflation hadn’t risen very much since 2009, the last time the minimum wage had been raised (to $7.25). And since even that small inflation increase would today justify raising the minimum wage (to $7.77), Romney tweaked his indexing formula, too. He said he would adjust the minimum wage based on inflation plus “the jobs level throughout the country, unemployment rate, [and] competitive rates in other states, or, in this case, other nations.” Anyone who couldn’t use these additional variables to squelch any proposed minimum-wage increase just wasn’t trying.
In theory, the start of the general election campaign might prompt Romney to tweak his formula yet again, so that it justifies a minimum-wage increase after all. Polls show voters typically favor raising the minimum wage. But the right remains suspicious of Romney, and, as long as that’s true, he’s unlikely to defy them on such a high-profile issue. (Just look at his squirming over immigration, even though polls show majorities support President Obama’s position.)
Another reason for Romney to resist proposing a minimum-wage increase is that neither President Obama nor Democratic leaders in Congress are pressing the matter. Obama entered office in 2009 pledging to raise the minimum wage and then index it to inflation, but that never happened. (The 2009 increase resulted from 2007 legislation signed by President Bush under pressure from a Democratic Congress; previously, the minimum wage hadn’t risen in ten years.) The president’s much-touted June 14 economic speech cited the establishment of a minimum wage as an example of “how we built this country—together,” but didn’t propose increasing it now. One week before, The Hill reported that Democratic efforts in Congress to raise the minimum wage were receiving no support either from Democratic leaders or from the White House. Presumably, they feared that promoting it would invite Republicans to excoriate them over the still-dismal unemployment rate.
If so, that’s a miscalculation. Republicans are going to excoriate Democrats about the unemployment rate anyway. And while it’s true in theory that raising the cost of hiring ought to reduce the number of people who get hired, a growing body of research (some of it by Obama’s own Council of Economic Advisers chairman, Alan Krueger) has found the real-world employment impact to lie somewhere between minimal and nonexistent. The likely reason is that any employment dip caused by a higher mandatory wage is offset by an employment rise attributable to improved economic efficiency. Paying workers more, it turns out, reduces turnover and inspires them to be more productive.
A popular myth has it that people working at or below the minimum wage are all teenagers (by definition more transient and less likely to take their work seriously). But in fact the majority are 25 years and older, according to the Bureau of Labor Statistics. About 60 percent work in the service industry (principally in fast food). Raising their pay would not put U.S. competitiveness at risk: You can’t offshore a burger-flipper at McDonald’s. Theoretically, there might be some indirect impact farther up the income scale, because a minimum-wage increase tends to raise middle-class wages, too. But after a decade of nonexistent or weak economic growth during which median income declined slightly (even as productivity rose), keeping the middle class down hardly looks like a surefire path to prosperity.
Pegging the minimum wage to inflation is a better deal for workers than Romney is willing to acknowledge. “Had one indexed the minimum wage back to, let’s say, 1990,” he told Kudlow, “the minimum wage would be lower now than it actually is.” That’s true; instead of $7.25, it would be $6.68. But why would we index to 1990? That was a low point for the minimum wage after nine years of Republican rule (including eight when President Reagan didn’t raise it at all). Index the minimum wage to its historic peak in 1968 (when the Great Society was in flower and the unemployment rate a paltry 3.6 percent), and the minimum wage would now be $10.57.
Boosting the minimum wage would put money in the hands of those most likely to spend it, and it would do so at no cost to the Treasury. At a moment when Congress is arguing feverishly about spending cuts versus tax increases, giving working people a raise bypasses this deadlock altogether. Politically, it fits neatly into the president’s theme that Republican intransigence increases income inequality. It would also give Obama something else with which to taunt Romney. “Loved your idea for Obamacare,” the president could say. “This one’s almost as good.”
This article appeared in the July 12, 2012 issue of the magazine.
13 comments
Well, Kevin Drum's headline of the day comes from Henry Blodget, and it is: Corporate Profits Just Hit An All-Time High, Wages Just Hit An All-Time Low Raise the minimum wage to keep businesses from stiffing workers. A business built on theft from the people who work there and buy its products to keep it thriving is not a business long for this world.
- chaitless
June 23, 2012 at 3:24pm
Raising the minimum wage to $10 and indexing it to inflation would also generate more tax revenue by paying people more and would reduce tax credits for some that currently benefit from the earned income tax credit. So the increased minimum wage would add funds to the Treasury.
- rsalzberg
June 24, 2012 at 6:43am
44 years ago the federal minimum wage was worth 46% more in real dollars than today.
- rsalzberg
June 24, 2012 at 7:31am
"Newt Gingrich, the Club For Growth, and The Wall Street Journal editorial page all hammered Romney for reiterating his former position, saying it would kill jobs." Yeah, right. I live in Australia, where the minimum wage is $15/hr. (Presently the Australian dollar is trading at or above parity with the greenback.) Australia also has the lowest jobless rate in the G20. It is simply remarkable how despite the onerous requirement that they pay a wage a person could, you know, actually live on, McDonald's and Burger King--known here as "Hungry Jacks"--manage to stay in business. Could it be that all the apprentice carpenters and supermarket clerks and movie theater ticket-takers who are also earning $15 an hour like their junk food as much their American counterparts and unlike them don't have to resort to dealing weed in order to pay for it?
- AaronW
June 24, 2012 at 8:33am
How's this for a slogan: "Make minimum wage a living wage"? There is no reason that any person willing and able to work 40 hours a week should not be able to support himself or herself and at least a single child on the wages earned thereby.
- AaronW
June 24, 2012 at 8:49am
....That's it, I'm moving to Australia!!! Is the cost of living in Australia any more on average?
- ARealHero
June 26, 2012 at 7:21pm
My Godson was blessed with skills that others could only envy. Football and baseball, touchdowns and home runs. Then there were all the rest, who wanted to be part of the team, even though they lacked the skills. Many participated anyway, and they had their supporters, mostly those who knew they weren't up to the grade but believed everybody deserved an equal chance, whatever the skills. As time went by, winning became the paramount goal for the team. Sure, some continued to promote those without the skills, but the goal for the team was to win. Eventually those without the skills fell by the wayside, and the supporters of the team hardly noticed. I sometimes think about them, but we've been so busy with those with the skills that we don't have time to really notice. I'm sure somebody does. I'm just glad to be part of a winning team.
- rayward
June 26, 2012 at 7:34pm
AaronW, Tie me kangaroo down, sport! I'm on my way! I second Hero's question: what's the comparative cost of living in Australia?
- magboy47.
June 26, 2012 at 11:55pm
Before AaronW answers my question and I finalize my move to Australia, I would just like to say that the minimum wage, and how low it is, directly ties into one of my biggest complaints about the right wing rhetoric. The idea that the top 1% and even the top 10% are the only thing keeping America afloat and that all those darn poor people who don’t pay the income tax (presumably out of mal intent rather than them being legitimately to poor), and that we should tax those people more. Never mind that the vast majority of America owns 10% of the wealth on a good day and is therefore in a rather poor position to levy any rich tax breaks. But then the idea that those people are “lucky ducky’s” and scrape by on a life of easy working and government paychecks just riles me up. Just because a person doesn’t make millions of dollars doesn’t mean that they don’t physically work just as hard as the top earner in the country, and they are still an important part of the economy that enable those rich people to become rich. The fact of the matter is, not everyone is smart enough to go to college, not everyone is smart enough or skilled enough to do much more than take peoples order at the drive through, but that is still a job and it is still a valuable component of the industry. There was this immigrant mother of two in the town I grew up in that worked “full-time” at the local McDonalds and the local Burger King. I know from talking with her that she only made minimum wage ($7.25). Now, both of those restaurants were so over-staffed that full time meant 30 hours a weeks if you were lucky. But even if she was lucky and managed to work 80 hours a week between two jobs, and did that for a whole year, before any taxes, a mother of two, living in a town that was 110 on the cost of living index, she would only make around $27,840 (assuming 2 paychecks a month). Now that’s actually a decent amount of money for a single person to make in a year, but she was a mother of two, and to even get that amount of money, she would be working inhumane working conditions. And heavens forbid one of her children got seriously hurt, as she didn’t have insurance because it was too expensive. Now does that sound like she was a lucky ducky to anyone? With minimum wage, people can work a hard 40 hours a week at one job and still only walk away with a staggering $13920(assuming there is 2 paychecks a month). Does that make the person lazy? No. Does that mean we should tax them more? No. As a result of the low minimum wage in relation to the cost of living, they are already going to have to rely on some form of government aid if they have the option, taking more of their money will simply make them have to rely more on government aid. In conclusion, we should just let Australia become our overlords.
- ARealHero
June 27, 2012 at 1:27am
But, isn't the minimum wage forcing people to pay for something? After today, we might have no minimum wage.
- Nusholtz
June 27, 2012 at 8:16am
Magboy47, is "Tie Me Kangaroo Down, Sport" the only song ever to mix bondage and bestiality?
- Mikelawyr22
June 27, 2012 at 8:41am
aaron asks "How's this for a slogan: "Make minimum wage a living wage"?" Don't let seattle see that...why living wage is just liberalese for give-away. Why would a corporate raider pay some lowly janitor or burger flipper $10+ an hour here in America when we need to ensure the capital gains rate stays as low as possible. Why if the janitor making $25K a year raising a family of 4 can't retire a millionaire by the time their 80 it's because he's a complete failure at life not because he's only making $7.75 an hour before taxes. I mean really, those Aussies are just a bunch of sunburned, mud slapping, convicts and what works there certainly wouldn't work here in America. We're not a socialist fun camp. Remember...you have the right to the pursuit of happiness but getting paid a fair wage...well that's a privilege of the lofty few.
- singlspeed
June 27, 2012 at 12:48pm
*they're* not their.
- singlspeed
June 27, 2012 at 12:49pm