From Reagan to Romney, a brief history of Republican thinking on the minimum wage
Economist Milton Friedman inspired a generation of conservatives resistant to government-set wages
As Congress considers what to do about a proposed $15 minimum wage, Republican opposition to the bill can be traced to two influential voices of the past: President Ronald Reagan and Nobel Prize-winning economist Milton Friedman.
The minimum wage did not increase during the eight years that Reagan was president, a term that began in 1980. That was the same year that Friedman and his wife, Rose Friedman, published a book that was so popular that it led to a PBS series and videos that are even now popular on YouTube.
In “Free to Choose,” an examination of economics and liberty, the Friedmans wrote that minimum-wage laws require employers to discriminate against unskilled workers. That argument and others made by Friedman have informed a generation of Republicans and Libertarians who now face the challenge of defending a longstanding principle in light of growing income inequality and public sentiment that has bent toward increasing the minimum wage.
Democrats’ efforts to include the wage increase in a COVID-19 relief bill were stalled Thursday when Senate parliamentarian Elizabeth MacDonough, a nonpartisan official, ruled that it is not permissible as written, The Washington Post reported.
Utah Republican Sen. Mitt Romney is among those seeking to identify a compromise that would avert stalled legislation of the past that has left the minimum wage unchanged since 2009, when it was set at $7.25 an hour.
Romney, along with Sen. Tom Cotton, an Arkansas Republican, crafted a bill introduced Thursday that would gradually increase the minimum wage to $10 an hour over four years with a slower phase-in for businesses with fewer than 20 employees.
Unlike some of his fellow Republicans, who oppose a minimum wage in principle, Romney believes that legislation to increase the wage should reflect changes in the cost of living while seeking to avert negative effects, such as job loss.
“There may be philosophical debates about whether or not we should have a minimum wage, but the reality is, we’re going to have a minimum wage,” said Romney, who also pushed for smaller increases than Democrats wanted when he was governor of Massachusetts.
Republican Sen. Josh Hawley of Missouri, meanwhile, has said he would support the Democratic proposal for a $15 minimum wage, but only for employees of large companies. He has proposed a “blue-collar bonus” that would provide refundable tax credits for people making below $16.50 an hour.
Lost in much of the debate is how relatively few Americans would see an increase in pay, if the federal minimum wage is increased. According to the Bureau of Labor Statistics, in 2020, about 1.5% of hourly workers in the U.S. earned the minimum wage or less.
The history of the minimum wage begins with Franklin D. Roosevelt and the National Industrial Recovery Act of 1933, which launched a series of guaranteed wages that ranged from $12 to $15 — a week. But it’s the time period between Reagan’s inauguration and Romney’s proposal that Republican thinking on the minimum wage became more entrenched. Here’s why the minimum wage has caused so much angst for the Republican Party, and where it may be headed this year.
A minimum wage of zero?
Survey any number of conservative pundits and podcasters, and you’ll find sharp-tongued resistance to President Joe Biden’s proposal to incrementally raise the minimum wage to $15 an hour by 2025. Daily Wire commentator Matt Walsh, for example, recently wrote on Twitter that “competent adults” aren’t working for minimum wage.
Walsh and other conservative pundits argue that most people who earn minimum wage are young and unskilled, and they may not need more money (for example, if they are students still living at home) or don’t deserve more because they provide little value to their employer. That thinking is at the heart of the Friedmans’ assertion in “Free to Choose” that “the minimum wage law requires employers to discriminate against people with low skills.”
“No one describes it that way, but that is in fact what it is,” the Friedmans wrote, adding that a poorly educated teen with no work history might only be worth $2 an hour to an employer, and unless the employer is willing to throw in another 90 cents of “charity” to reach the then-minimum wage of $2.90, the teen wouldn’t have a job at all.
“It has always been a mystery to us why a young person is better off unemployed from a job that would pay $2.90 an hour than employed at a job that pays $2.00 an hour,” the Friedmans wrote.
The Friedmans also said that low-paying jobs and apprenticeships provide other value than money to the unskilled worker, such as the chance to learn new skills and acquire experience.
More than 100 studies have shown that increases in the minimum wage result in fewer available jobs, said Steve Hanke, a professor of applied economics at Johns Hopkins University in Baltimore, who was a senior economist on President Reagan’s council of economic advisers.
A new report from the nonpartisan Congressional Budget Office projects that if the Raise the Wage Act of 2021 is enacted as written, there would be 1.4 million fewer jobs in the U.S., a decline of 0.9%.
“The people the minimum wage is designed to help, it hurts, because they don’t get the minimum wage. They don’t have a job. If you jack the minimum wage up higher than someone is worth, they’re not going to be hired,” Hanke said.
Mark J. Perry, a scholar at the American Enterprise Institute and economics professor at the University of Michigan-Flint, agreed, saying that people often think the minimum-wage debate pits an employee against an employer; in fact, he said, it’s about employees competing against each other.
“Low-skilled workers compete against higher-skilled workers. That’s something that often gets overlooked. Employers will overlook those lower-skilled workers in favor of hiring higher-skilled workers,” Perry said.
“As (economist) Thomas Sowell has pointed out, the real minimum wage is always zero because that’s what the worker makes if he or she can’t find a job because he’s been priced out of the labor market because the minimum wage is above what they’re really worth to an employer.”
Costs vs. benefits
The Congressional Budget Office report, however, also says a minimum wage increase would reduce the number of Americans in poverty by 0.9 million, and that there would be fewer people reliant on government programs, such as food assistance.
Paul K. Sonn, state policy program director for the National Employment Law Project, a New York nonprofit that advocates for a $15 minimum wage, said any negative effects of the change, such as the potential for increased consumer prices, are outweighed by the benefits. And he notes that recent surveys have found a majority of Americans favor a higher minimum wage, as do many companies. Amazon, for example, which already has an in-house $15 minimum wage, supports the change nationwide.
“We believe $15 an hour is the minimum anyone in the U.S. should be paid for an hour of labor. We also believe it’s good for business,” Jay Carney, Amazon’s senior vice president of global corporate affairs, wrote on the company website.
Walmart, the largest employer in the U.S., starts its workers at $11, offering a Friedman-like argument that the pay structure allows its workers to advance.
“Those people that we’re raising wages for tend to have been with us for a longer period of time than someone that might be earning the entry wage,” CEO Doug McMillon told investors, Business Insider reported. “We’re trying to ... create this ladder of opportunity, providing an opportunity for people when they start with the company to build a career like so many of us already have.”
McMillon, who began his career at Walmart as a teen making $6.50 an hour, said the company wouldn’t be able to implement its ladder of increases if it had to pay everyone a minimum of $15 an hour right now.
Competent adults aren't slaving away at jobs for years on end and still making only minimum wage. If you are an adult and have been working in an industry for years and are still only making minimum wage, you have problems that a minimum wage hike can't fix.— Matt Walsh (@MattWalshBlog) January 27, 2021
The minimum wage in the U.S. is a complicated patchwork of laws, with states and even cities having standards independent of federal law.
But it is the differences between the states that are a prime component of arguments against a federal minimum wage, according to Perry, at the American Enterprise Institute.
“There’s no reason that we should have a $15 uniform wage for the entire country, for both high-cost-of-living areas and low-cost-of-living areas,” he said. Fifteen dollars an hour might be appropriate in Hawaii, which has the nation’s highest cost of living, he said, but $10 might be more appropriate for Mississippi.
“You could make the case that if there is going to be a minimum-wage law, it should be set by the state or county or city government, not by the federal government,” he said.
But Romney, the senator from Utah, said America has a federal minimum wage and it’s not going away, so it’s incumbent upon policymakers to enact one that has a minimal effect on the number of jobs. He said the $10 proposal he has put forth with Cotton and three other senators would not result in lost jobs, and he has long been in favor of a minimum wage that adjusts for inflation. In the matter of wages, he says, the government has a justifiable interest in what private businesses do.
“The federal government does provide support for people at the very low income level,” he said. “Not having a minimum wage can increase the amount of federal expenditures for health care, food, clothing and child benefits, so the federal government does very much have a stake in what businesses are paying people.”
.@JanetYellen believes that #Biden’s $15/hr #MinimumWage will have a “minimal effect on jobs” & boost the economy. False. A higher minimum wage makes it illegal to hire low-skilled workers “because their value to a business is lower than $15/hr.” Econ 101.https://t.co/atOzFBqYhH— Steve Hanke (@steve_hanke) February 21, 2021
What would Reagan do?
With his proposal, Romney has again established himself as an outlier. He has previously said that Republicans are “nuts” to not want to raise the minimum wage, adding “I think, as a party, to say we’re trying to help the middle class of America and the poor and not raise the minimum wage sends exactly the wrong signal.”
Yet proponents of a higher minimum wage, such as Sonn at the National Employment Law Project, are unhappy with the Romney-Cotton plan, which also requires employers to verify the employment status of their workers through E-Verify.
Sonn called the stipulation a “punitive anti-immigrant measure masquerading as a minimum-wage increase.”
Romney also finds himself outside the tent of people like Hanke, who considered Friedman a friend and mentor and who also was friends with another economist widely admired by conservatives, Friedrich Hayek.
Romney, Hanke said, is “off the reservation” when it comes to the minimum wage. “The government should not be in the business of setting prices, whether they’re for labor or for goods and services,” he said. “The market should be determinant, with sellers and buyers voluntarily agreeing what price they pay. … From my point of view, it really is immoral for the government to be coming in and setting prices of things.”
Hanke doesn’t think much of Hawley’s proposal, either. “Milton Friedman would scold him and give him a quick lesson in economics, and so would I,” he said.
And what would Hanke’s former employer, Ronald Reagan, do, if he’d been confronted with legislation to raise the minimum wage, which was $3.35 during his administration, to $15, as Democrats propose today?
“I don’t think he would have abolished it all together, because Reagan was principled, but pragmatic,” Hanke said. “I don’t think he would think the abolition of the minimum wage would be worth the political cost of doing it, even though he would be very happy to have gotten rid of the whole thing.
“I think he would have remained as quiet as possible on raising it, as he did.”