Economics

I’m sorry, Romney said what about the minimum wage?

Mitt Romney knows he blew it when he said he was “not concerned about the very poor.” As he stated later, ”Sometimes things don’t come out exactly the way you’d like them to. That’s not exactly what I meant to say. My focus is on middle income Americans. We do have a safety net for the very poor, and I said if there are holes in it I want to correct that.”

Only hyperpartisans would assume Romney meant otherwise. Now I am waiting for a clarification/explanation of these comments, which are far more disturbing:

Republican presidential contender Mitt Romney renewed his support Wednesday for automatic increases in the federal minimum wage to keep pace with inflation, a position sharply at odds with traditional GOP business allies, conservatives and the party’s senior lawmakers. ”I haven’t changed my thoughts on that,” the former Massachusetts governor told reporters aboard his chartered campaign plane, referring to a stand he has held for a decade. …

Congress first enacted federal minimum wage legislation in 1938 and has raised it sporadically in the years since. The last increase, approved in 2007, took effect in three installments and reached $7.25 an hour for covered workers effective July 24, 2009. It has never been allowed to rise automatically, as Romney envisions.

Romney is wrong on this. It’s basic economics, really. Certainly a  ”conservative businessmen” should understand that if you raise the price of apples, people will buy fewer apples. If you raise the price on labor, firms will hire fewer workers or give them fewer hours. Here are the results of a 2006 review of the economic literature on the minimum wage:

 …  the oft-stated assertion that recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect. A sizable majority of the studies surveyed in this monograph give a relatively consistent (although not always statistically significant) indication of negative employment effects of minimum wages. In addition, among the papers we view as providing the most credible evidence, almost all point to negative employment effects, both for the United States as well as for many other countries.

Two other important conclusions emerge from our review. First, we see very few—if any—studies that provide convincing evidence of positive employment effects of minimum wages, especially from those studies that focus on the broader groups (rather than a narrow industry) for which the competitive model predicts disemployment effects. Second, the studies that focus on the least-skilled groups provide relatively overwhelming evidence of stronger disemployment effects for these groups.

In sum, we view the literature—when read broadly and critically—as largely solidifying the conventional view that minimum wages reduce employment among low-skilled workers, and as suggesting that the low-wage labor market can be reasonably approximated by the neoclassical competitive model.  … given that the weight of the evidence points to disemployment effects, the wisdom of pursuing higher minimum wages hinges on the tradeoffs between the effects of minimum wages on different workers and other economic agents, and on whether other policies present more favorable tradeoffs.

Overall, the authors reviewed ninety different studies and highlighted what they found to be the most credible sources of information. They found that nearly two-thirds of the credible studies found job losses from an increased minimum wage. Romney says he’s data driven. Well, the data on the minimum wage should drive him to a different opinion. And AEI’s Kevin Hassett adds this:

It is true that those folks who are on the minimum wage and don’t lose their job have higher earnings. But the trade-off is morally ambiguous at best. Should we enact a policy that gives 10 people an extra $40 a week, but whacks the 11th guy? Shouldn’t the terrible disruption to the lives of those who are fired be more of a concern to us than the extra money for those who are not? Is it right to redistribute from the worse-off poor to the better-off poor? It’s especially wrong when there are superior options. The earned income tax credit gets money to working poor folks without creating the disincentives that go with higher minimum wages. Columbia University economist Ned Phelps has also suggested a tax subsidy for firms that hire low-wage workers. That, too, would be preferable.

Instead of talking about the minimum wage, Romney should have been talking about the earned income tax credit that Hassett mentions. If only Romney had an adviser advocating such a thing. Oh, wait, he does! Back in 2007, Romney economic adviser Greg Mankiw wrote in his blog that the ”EITC is far better targeted as an antipoverty policy” than the minimum wage as evidenced by a Congressional Budget Office study on the topic.

18 thoughts on “I’m sorry, Romney said what about the minimum wage?

  1. It absolute stuns me the state of economics education in our country, let alone in our “leaders”.

    I learned in Economics 101 that a minimum wage is a price floor, which necessarily creates a surplus when it is above the market price for a good. In the case of labor, this surplus is known as unemployment. When you raise the minimum wage further above the market price, you increase the surplus, i.e., raise the number of people out of work.

    The only alternative for an employer is to raise prices to cover his increased costs. Tell me, Mr. Romney, who is affected by either higher unemployment or higher prices? Not rich people. Middle-income people are hurt some, but the vast majority of the damage is done to low-income earners.

    Conversely, price ceilings cause shortages; this is the main reason governmental intervention in the health care market (i.e., Obamacare and Romneycare) are so vile. Because Romney did not in his core understand this, and continues to this day to defend government-run (whether state or federal) health care shows he doesn’t understand these basic concepts.

    Until a candidate comes along that can make the argument to the American people, we will be stuck with Fords, Bushes, Doles, McCains, Romneys, and Gingriches. And Presidents like Obama.

  2. And folks think Romney is Conservative?
    The welfare state is a self perpetuating, democrat voting generating tool.
    The entire premise needs to be re-examined, and the Establishment candidate isn’t the one to bring about that change….obviously

  3. At 16, I was happy to make the minimum wage of $3.35/hr until I could I work my way up to a higher paying job. Raising the minimum just limits the job opportunities for our youth and encourages workers to be satisfied with skills that have little real economic value.

  4. What would Mitt Romney know about the minimum wage? None of the companies he ran ever paid anyone the minimum wage, but more to the point, why would he give it moment’s thought? If he had, he’d have realized that the small businesses that do pay their entry level workers the minimum wage view it as a training wage, and once they’ve proven their worth to the company in about six month’s time, they get a raise. Not a bad way to start off in the workforce. But, force that raise higher and small companies won’t take the chance on hiring low skilled workers, who are often teens and minorities.

    I suspect that if Romney took the time to learn about the issue, he’d see where he got this wrong. I don’t even think this is an issue with political punch, so he’s unlikely to gain much by being for a higher minimum wage. I think he just went with his heart and not his head, which is sometimes a good idea, but not this time.

  5. A majority of low income earners that are affected by minimum wage policy are young people working in low skill jobs. Since obamacare redefined adulthood to begin at 27, all “children” 26 years old and under should not qualify for minumum wage.

  6. Actually Romney is being quite intelligent about this. Rather than making the minimum wage a factor of political fights every 2-3 years, you just peg it to the rate of inflation and de-politicize the issue. Are conservatives really advocating that in 15 years, our minimum wage should still be less than $8.00 an hour…and we’ll never raise it? I understand the logic of doing away with it entirely, and when the Republicans create a kingdom where there are no Democrats..we can entertain that discussion. Our reality is that this is a nation divided, and whenever we can take the politics out of simple things like minimum wage, the sooner we can get on with bigger issues. And yes..I worked in those minimum wage jobs when I was a kid. I remember my boss telling me..”I’m now paying you a man’s wage, I want man’s work out of you. To which I responded, “actually, you’re paying me minimum wage, so you’ll get minimum work out of me.” He fell on the floor laughing, knowing that my work behind the scenes was tripling my wage through tips. Of course, I could fill up my gas tank then for $10. Inflation has had an impact on everything else…so just peg the MW to inflation..and be done with it already.

    • If you are looking for a country with wage controls, there are plenty of socialist and communist countries to choose from. No need to “fundamentally transform” our nation into one of them.

      Automatic increases of anything budgetary is partially what got our economy in the mess it is in. I like political wrangling. Make defenders justify why America should support their causes.

      Putting the minimum wage on auto-pilot is very dangerous for businesses and the economy.

  7. Minimum wage laws punish the least skilled workers in our economies. They are part of the Democratic Party’s populist schtick. The appeal of some one forcing employers to pay higher wages is seductive. The unseen affect where jobs are then lost because the profitability in the low wage job is inadequate, is being ignored. People who are educated as to economic responses to changes in costs prostitute themselves to the party line when they should be held to ridicule for advocating nonsense. Thus foolishness is allowed to prevail and become institutionalized. Romney probably made a political decision to forgo a contest about a phenomena whose idiocy is ingrained as a noble idea by the average person.

    • In San Francisco we have a city minimum wage that is set based on the cost of living.

      It matters not in my decision to go out and do things. Tourists that came here don’t seem to care.

      The conservative notion that a minimum wage harms the poor, serves the wealthy. Fact is, putting more money in the hands of more people means a more lively economy. The minimum wage you disparage allows the people earning it to spend money, and it has a net positive stimulative effect.

  8. I have a hard time believing it. What’s the reference? What’s the source? I’ve read his “Believe in America” plan and nowhere does he talk about the minimum wage. In fact, the only time I’ve heard him talk about it is when he mentioned that the minimum wage kills jobs. So before we jump all over this, what’s the reference?

    • There are a lot of things Mitt Romney supporters don’t know about Mitt Romney. Or, at least wish to not know about him. What’s the source? Google is your friend.

  9. Ah, I see the reference now. Sorry, what’s wrong with indexing the minimum wage to inflation? Can anyone explain that? First of all, it’s never going away. As much as we conservatives would like it to go away for purely theoretical reasons that Milton Friedman can explain best, it’s not going to happen. No politician except perhaps Ron Paul is going to seriously attack the minimum wage. So what’s the next best thing? Reducing it? Probably not going to happen either. So what’s the next best thing after that? Indexing it to inflation so politicians can’t use it as a partisan political weapon and arbitrarily raise it whenever they feel it’s politically expedient, completely ignoring any economic impacts? Yes. Absolutely. Romney is right on this one.

    • What’s wrong with indexing vs. inflation, is politicians WOULD still be able to use it as a partisan weapon, by proposing changes to the rate at which it is indexed to inflation. Instead of arguing for an increase or no increase, they’d be arguing over the rate at which it would increase vs. inflation. It would be, for all intents and purposes, no different politically.

  10. I get frustrated with “pure” conservatives who thump their chests because the candidates running for office don’t espouse their every ideal. News flash: we live in a democratic republic with a lot of competing ideas, so to actually get things done you have to either convince a majority of people that your idea is the best or you have to compromise. That’s the real world. I think Romney’s idea is a great one. First of all, some perspective. No politician in his right mind is going to sacrifice getting re-elected over an issue so small as the minimum wage. Second, the minimum wage is probably never going away. Third, the minimum wage is used as a political battle-ax by the Left especially when they arbitrarily raise it with no concern whatsoever for the economic impact. Then they point fingers and wag their tongues at the Republicans who oppose it. How about we index the minimum wage to inflation so it never gets used as a political weapon again? Let’s stop getting our panties in a twist about politicians not toeing the line on every “pure” conservative concept and get excited about getting them elected because they are a heck of a lot better than the liberals in office.

    • Minimum wage affects our entire economy, starting with small businesses on up. Small issue? Run a business and tell me labor costs are a small issue. Of course, Romney’s specialty is “creative destruction,” so meeting payroll is easy. Just reduce labor costs.

      Democrats will wag their finger at republicans for every conservative stand they take. Should the GOP abandon its conservative principles to avoid finger wagging? Why not just merge the two parties and avoid all conflict?

  11. AUTiger, and the researchers described by the author of the article have it right. Increases in minimum wage, long marketed as beneficial to low earners, actually hurt that segment of society.

    It’s falsely imposing a price on labor, which is a commodity like any other. Price freezes rarely provide more benefit than harm (recall the gas shortages of the 70′s in the USA as a perfect example of trying to ‘fix’ pricing for a commodity).

    To be honest, I cannot even see how indexing minimum wage to inflation would eliminate recurring arguments over it. Instead, the arguments would simply shift from “should we raise minimum wage or not?” to “how high/low should the indexing be set?”.

    • “It’s falsely imposing a price on labor, which is a commodity like any other.”

      The last half of the statement is where you go wrong.

      Labor is not like many other commodities. If the price of apples goes up, people will only buy fewer if there is 1) another fruit they want to eat, or 2) if they can really make do eating less food. In the case of labor, what is the choice that will cause people to respond to a price increase by buying less? Is it choosing off-shore labor? Not for service industries. Immigrants? Not if they’re paid legally. Automation? Productivity is a good thing.

      Oh, that, and labor is PEOPLE. The free market is a valuable tool, but it doesn’t follow that it must be the Master.

  12. A problem with this analysis is that you are working on the assumption that inflation will always increase. Pinning the minimum wage to inflation would force businesses that do business in the United States to have more vested interest in bringing down the inflation in the Dollar, instead of our current system where there are more powerful forces pulling in the opposite direction. I would argue that when Romney said this he wanted to make it sound like he really cared about the poor, but instead it’s really just a goal for him as a conservative to pin business interest to the national debt, which as a ‘conservative’ he is more infatuated with than employment.

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