The National Employment Law Project Action Fund, a left-leaning group, is touting the news that Mitt Romney supports indexing the federal minimum wage to CPI. He supported this measure during his 2002 campaign for governor of Massachusetts, and he has recently reiterated. Newt Gingrich has expressed his disagreement with Romney on this score.
Meanwhile, many millions of low-wage workers would see an immediate 20 percent or 30 percent boost in their take-home pay, producing a large increase in general economic activity, not to mention personal well-being. We must bear in mind that an increase in the hourly minimum wage from the current federal level of $7.25 to (say) $12.00 would also have secondary, smaller ripple effects, boosting wages already above that level as well, perhaps even reaching workers earning as much as $15 per hour.
I’m actually not sure that this is true. I buy that jobs at the bottom of the ladder will evaporate. I don’t know how many workers who currently earn the minimum wage will find themselves with a sudden boost in take-home pay. This is an empirical question that is contested.
The likely impact upon immigrant workers, whether legal or illegal, would be quite varied. Those most recently arrived, especially illegal ones with weak language or job skills, would probably lose their jobs, especially since many of these individuals are already forced to work (illegally) for sub-minimum wages. However, workers who have been here for some years and acquired reasonably good language and job skills and who had demonstrated their reliability over time would probably be kept on, even if their employer needed to boost their pay by a dollar or two an hour.
Thus, the force of the policy would fall overwhelmingly on those immigrants who possessed the weakest ties to American society and still retained the strongest links to their country of origin. By contrast, those immigrants—legal or otherwise—who had lived here for some years and therefore had gradually become part of the community would mostly emerge unscathed, probably receiving a very welcome boost to their family income. Some anti-immigration activists might find this prospect extremely distasteful, but half- or two-thirds of a loaf is better than none. [Emphasis added]
I find it unimaginable that Romney would support a steep increase in the federal minimum wage. Yet were he to do so, he would devastate his Republican rivals. A significant minimum wage increase is backed by a large bipartisan majority, leaving aside its substantive merits. Unz emphasizes the impact on immigrant workers, though this policy would also have some nontrivial impact on teenagers, etc.
The left-leaning economist James Galbraith has embraced Unz’s proposal:
The plan isn’t just good for Republicans — it’s good for the economy. What would workers do with the raise? They’d spend it, creating jobs for other workers. They’d pay down their mortgages and car loans, getting themselves out of debt. They’d pay more taxes — on sales and property, mostly — thereby relieving the fiscal crises of states and localities. More teachers, police, and firefighters would keep their jobs.
Would this hurt competitiveness? Not at all. That’s an issue for manufactured goods and traded services like insurance and banking, sectors in which everyone already earns far more than $12 an hour. The jobs we’re talking about are in non-traded services like checkout clerks, haircutters, domestic help, and food-service workers — you can’t run a deep fryer in Terre Haute from Bangalore.
Would prices go up? Some would. But rich people can afford it — and workers would have extra income to pay the higher prices, so most of them would come out ahead. Women in particular would benefit because they tend to work for lower wages. With more family income, some people would choose to retire, go back to school, or have children, making it easier for others who need jobs to find them. Working families would have more time for community life, including politics; Americans would start to reclaim the middle-class political organization that they once had. Because payroll- and income-tax revenues would rise, the federal deficit would come down. Social Security worries would fade.
These arguments aren’t likely to convince conservatives, and one assumes that many food-service firms would choose to substitute technology for labor. Moreover, Galbraith may be underestimating the impact of raising the cost of outsourcing household production. Shifting to a European norm — less market production, more non-leisure household production — has clear downsides. Regardless, this is actually a tougher call than I would’ve thought before reading Unz.