Romney: Let's raise the minimum wage

Alternate headline: Romney not running for President in 2016. Mike Barnicle braced Mitt Romney on the GOP’s demographic issues and its “conservative bent” on popular initiatives like immigration reform and a minimum-wage hike. Romney talks about the big tent of Republicanism, but notes that he supports a minimum-wage hike:


“I think we ought to raise it, because frankly, our party is all about more jobs and better pay, and I think communicating that is important to us,” Romney said on MSNBC’s “Morning Joe.”

In recent days, two of Romney’s former opponents, Rick Santorum and Tim Pawlenty, have also urged their part to raise the minimum wage.

Republicans are correct to aim toward blue-collar economics, especially after the debacle of focusing on the so-called “47 percent.” The minimum-wage hike, especially as proposed by the Obama administration, is the wrong way to go about it. The US has repeatedly hiked the minimum wage, and yet has ended up in the same position in regard to the percentage living in poverty anyway. Why? Because raising the minimum wage only temporarily boosts buying power, as prices rise and jobs erode in response to the higher costs it imposes.

In fact, as the CBO pointed out, the majority of the costs end up being borne by the poor the minimum-wage hike is supposed to help:

Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects (see the table below). As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers

The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates.

Moreover, the increased earnings for some workers would be accompanied by reductions in real (inflation-adjusted) income for the people who became jobless because of the minimum-wage increase, for business owners, and for consumers facing higher prices.


If minimum-wage hikes solves problems of poverty and inequality, then we would have solved both of those issues decades ago. We have yet to see any evidence that they actually produce anything but an extremely short-term benefit, and mostly to those who don’t need it. (Amity Shlaes presented an argument this week that it actually made the unemployment situation during the Depression substantially worse.) Unfortunately, the GOP hasn’t done a very good job of pointing out the pitfalls of this policy, while Democrats mainly demagogue the point on “fairness.”

What kind of economic message should Republicans have? We need to focus on policies that expand opportunity, especially in the entrepreneurial arena. The massive decline of business births over the last several decades has curtailed the kind of job creation and economic expansion that puts pressure on labor markets to increase compensation. As I argued in my column for The Fiscal Times this week, that decline is a result of a massively-expanded federal regulatory regime that stifles start-ups while giving advantage to rent-seeking large players in markets:

The problem, therefore, is national, and must relate to regulatory or tax policy or a combination of both. During this period, though, taxes didn’t increase sharply for businesses, at least not until recently.  With few and temporary exceptions, though, the federal regulatory regime has only increased.  The Phoenix Center pointed out this implacable escalation in its April 2011 policy bulletin on regulatory expenditures.

As a share of private sector GDP, the federal regulatory burden has increased over the same period as this study. The Phoenix Center recommended at the time that even a small decrease in federal regulatory burden – just 5 percent, roughly decreasing the regulatory budget by less than $3 billion – would generate an additional $75 billion in the economy and add 1.19 million new jobs to the private sector.

Instead, we passed Obamacare.

We have another indirect method to test this conclusion, too. Expanded regulation tends to favor larger and more established firms in a market, which have more resources and better economies of scale to deal with compliance issues. Sure enough, the Brookings Institution study found that kind of dynamism alive and well. “Whatever the reason,” the authors conclude, “older and larger businesses are doing better relative to younger and smaller ones.”


Instead of increasing costs on business and stifling even more jobs, the GOP should be aiming at cost and regulatory reductions, an expansion of energy production to lower costs even further, and streamlining the tax code to rid ourselves of the rent-seeking policies that offer unfair advantages to larger players. Republicans and conservatives should consider a more comprehensive and deliberate effort to rein in market consolidations on that basis, too. Anti-trust has always been more of a function of the other end of the political spectrum, but any effort to defeat crony capitalism has to aim at two targets: the reduction of centralized power in the public sector, and the reduction of centralized power in the private sector. Unless we’re serious about both, we’re not serious about ending crony capitalism, and we’re not serious about blue-collar economics.

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