Mitt Romney’s Miss on the Minimum Wage

I have a great deal of respect for Mitt Romney as a man and as a business thinker, but it seems he simply hasn’t thought through his case for raising the minimum wage, delivered on Morning Joe this morning:

https://youtube.com/watch?v=leZDCccRqJw

Let’s run through the problems here: If the GOP stands for higher wages and more jobs, which Romney says it needs to, the minimum wage is a terrible way to show it. You have to move pretty far left on the economic spectrum to get arguments that raising the price floor for jobs will actually create more of them — it just doesn’t make any sense. Organizing for Action, the nonprofit group that grew out of Obama’s campaign, has occasionally put this idea out there, but they just assume that the higher wages will be new economic activity added, which would translate into jobs:

Romney should (and does) know this isn’t how it works, that higher wages will have to come from somewhere — and it could be higher prices, or it could be fewer jobs. And Romney’s suggestion that this is especially important to minority communities, even if that’s what they support politically, isn’t economically sensible. A higher minimum wage hurts two groups: second earners and teenagers who drop out of the labor force, and people whose labor simply isn’t worth $10.10 an hour. Who is that? Besides teenagers, it’s also people without English-language skills, ex-cons (who are hugely disproportionately minority), and people without a high-school degree (again, a disproportionately minority group). Raising the minimum wage is a good way to push these people out of the labor force, which is an extremely bad way to help them prosper. Work-focused welfare programs, which Romney talked about during his campaign, or EITC reform, which he unsurprisingly didn’t, may not be as easy to explain as the minimum wage, but they’re better ways to help minority communities.

One of the best economic arguments against the minimum wage, in my view, is that states can figure out what works for themselves, and we shouldn’t have the federal government impose such a fundamental constraint on an economy that varies so widely in cost of living, growth prospects, etc. The principle here is one Romney should know acutely: He argued that he supported Romneycare but opposed Obamacare in large part because what was right for Massachusetts wasn’t necessarily right for the rest of America. Whether Romneycare was right for Massachusetts is a separate debate, but this was an important distinction — and one that should hold in labor policy as it does in health-care policy.

I think it’s possible Romney wasn’t really trying to make an economic argument, but a political one. That is, he was saying it’s hard for Republicans to oppose raising the minimum wage and also convince people that they care a lot about wages. Giving in on the minimum wage could be a useful way to demonstrate that we do care — even if, as Romney should know, it’s not the right underlying policy. This is more like the argument Tim Pawlenty and Rick Santorum (political sages, all) have been making, and they might well have a point.

The extremely tricky politics of this fight is why Reihan has argued (reluctantly) that we should consider indexing the minimum wage to inflation. While Romney didn’t say it on Morning Joe, that’s what he’s supported in the past. The problem is that here, he argued in favor of a higher minimum wage in general, when the current proposal isn’t to index it but to give it a huge boost (nearly 40 percent).