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.