Politics & Policy

The Wages of Pandering

Mitt Romney has done himself no favors in developing a reputation for political inconstancy, but a flip-flop on his recently reaffirmed support for automatic increases in the minimum wage would be welcome. Indexing the minimum wage to inflation is bad economics, bad public policy, and bad politics: the full trifecta of political incompetence.

The law says that the minimum wage is $7.25 an hour. Reality says the minimum wage is $0.00 an hour, and millions of unemployed Americans are collecting that — especially the young, among whom unemployment persists at catastrophically high levels. The practical effect of the minimum wage is not to give entry-level workers bigger paychecks, but to deprive would-be workers of paychecks entirely by pricing them out of the market. A would-be worker whose labor produces $6 an hour in value does not become worth $7.25 because the government says so; what he becomes is unemployed and unemployable. As Thomas Sowell points out, when the federal minimum wage was set so low as to have no practical effect, unemployment among black teens seeking work was under 10 percent, while today it hovers around 40 percent. The unemployment rate among teenaged would-be workers of all races is 23 percent. These are the obvious effect of price controls. It would be fair for conservatives to ask Governor Romney: In what other sectors of the economy does he endorse federal price controls? Health care? Energy? CEO compensation?

Fewer than 2 million Americans earn the federal minimum wage, or about 1 percent of the labor force. (There are more workers who are paid less than the minimum wage than paid the minimum wage, largely tip-dependent hospitality workers.) Half of minimum-wage earners are under 25 years old. Among those who do earn the minimum wage, few earn it for very long: Workers in entry-level jobs tend to receive pay increases quickly as they pick up fundamental skills and establish their reliability. They are not, for the most part, heads of households or parents attempting to raise children. They are largely students in part-time jobs or temporary jobs and young people just entering the work force — people for whom a minimum-wage job is appropriate and worthwhile. A higher minimum wage means that fewer young people get to enter into the work force in the first place, which is a far more serious social and economic problem than relatively low wages for teenagers. Young people who work in part-time and temporary jobs are far more likely to eventually enter full-time jobs at better wages than are those who do not. It is not low wages at McDonalds that we should be worrying about (though, for the record, McDonald’s pays relatively few of its employees the minimum wage), but chronic, long-term unemployment, especially among young people who have never held a job at all. Unfortunately, Governor Romney’s proposal would make that catastrophe worse.

If Governor Romney wishes to put more money into the pockets of minimum-wage workers, he would be far better off supporting an increase in the Earned-Income Tax Credit. The EITC is a defective welfare program, but it has an important advantage over raising the minimum wage: It does not give employers an incentive to fire low-wage workers or to outsource labor. Indeed, we’d be better off simply cutting low-wage workers a check than distorting the labor market in such a way as to discourage entry-level work.

It is true that indexing the minimum wage would have a few advantages: Eliminating the regularly recurring debate over raising the minimum wage would reduce economic uncertainty. It would also prevent a regularly recurring political fight that Republicans always lose. But it would also eliminate the most desirable feature of the law as written: that the minimum wage is eroded over time by inflation and therefore becomes less relevant.

No doubt fearing that he is to be depicted as an out-of-touch plutocrat, Governor Romney is tepidly entering the federal giveaway sweepstakes. He will lose that contest. “A marginally better minimum-wage job” is not going to beat “a chicken in every pot,” especially when the chicken is eligible for federally subsidized health care, day care, Head Start, and the rest of the Democrats’ menu of welfare largesse. Instead of focusing on minimum-wage jobs, Governor Romney would do well to focus on creating the economic conditions that will allow the growth of better jobs: $45,000 a year and your self-respect does beat a chicken in every pot. From energy to services to manufacturing, the United States has the capacity to achieve strong economic growth and the jobs that go with it — if the regulators, the taxers, the spenders, and the would-be central planners can be brought to heel. Governor Romney should be beating them, not joining them.


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