The Corner

Economy & Business

Indexing the Minimum Wage: The Political Consequences

Senator Mitt Romney (R-UT) asks a question during a Senate Foreign Relations Committee hearing in Washington, D.C., July 30, 2020. (Greg Nash/Reuters)

Instead of raising the minimum wage to $15 an hour, as Democrats urge, Senators Tom Cotton (R., Ark.) and Mitt Romney (R., Utah) propose to set it at $10 an hour but let it rise automatically to keep up with inflation.

My American Enterprise Institute colleague Michael Strain makes two main arguments against the Republicans’ idea. The first is purely economic: Indexing the minimum wage would increase its negative effects on employment, and there is some evidence that the increase would be large.

The second is political:

Cotton and Romney likely think that by putting minimum wage increases on autopilot, they would mitigate the political hit Republicans take by having to oppose Democrats’ frequent attempts to raise the wage floor. They are mistaken.

Raising the mandatory wage will always be popular among voters and workers. Democrats would simply lobby to increase the minimum wage above what the inflation-adjustment formula dictates.

The assumption here is that the minimum wage is, if not a bad idea in principle, at least something that can easily be raised too high, at the expense of employment. Indexing it would, in Strain’s view, not so much change the political dynamics of debates over raising it as change the baseline against which those debates are conducted. Those who worry about setting the minimum wage too high would have made a big concession in return for nothing.

Assuming the premise that our main fear about the minimum wage should be that it will be set too high, the question of whether to index is one of prudential judgment — and it’s a complicated one.

I wouldn’t be so quick to dismiss the idea that indexing would reduce the political pressure for legislation to raise the minimum wage. Supporters of a higher minimum wage emphasize that the law hasn’t kept up with inflation, presumably because they think it’s one of their strongest arguments. Indexing would largely deprive them of it. (I say “largely” because they could still say the adjustment used too stingy a measure of inflation.)

And while raising the minimum wage is always popular, as Strain writes, it’s not so popular that it happens frequently. The last three times Congress passed legislation to raise it came in 1989, 1996, and 2007. We got through the Obama administration without an increase.

But which direction does this fact cut? Maybe it means that we don’t need to tie the minimum wage to inflation to fend off legislated increases — they’re being fended off pretty well as it is. Or maybe they would happen even less frequently with indexing.


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