Bare Minimum

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JUNE 23, 2012

Bare Minimum

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.

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posted in: congress, larry kudlow, massachusetts, massachusetts, new hampshire

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