A new day for the minimum wage?

January 24, 2012: 11:46 AM ET

This election season, influential Republicans are straying from party orthodoxy and are open to raising the minimum wage. But such a boost would not be a quick fix for a decade of stagnating wages.

By Elizabeth G. Olson, contributor

FORTUNE -- Debate over the minimum wage is an American political perennial but, this election season, some influential Republicans are straying from party orthodoxy and have said that they are open to raising the hourly rate.

Presidential contender Mitt Romney recently said he supported linking the minimum wage to inflation, reiterating a position he held earlier in his political career. New York City Mayor Michael Bloomberg (who is a registered Independent, but was elected to his first two mayoral terms as a Republican candidate) also urged a lift in the basic hourly pay for workers. Even New Jersey's tough-on-labor Republican governor Chris Christie has indicated in past weeks that would not rule out a hike in his state.

In remarks on the campaign trail, Romney said that he favors allowing "the minimum wage to rise with the CPI (Consumer Price Index) or with another index so that it adjusts automatically over time." He is in rare agreement with President Obama, who supports a $9.50 minimum wage and tying it to the federal cost-of-living index.

This unusual convergence of political views has smoothed the edges of a long-running, and sometimes furious, debate over a policy that dates back to 1938 when Franklin Roosevelt's administration, reacting to Depression-era economic turmoil, set a minimum wage to stabilize prices and wages.

In the ensuing decades, labor-intensive businesses, such as restaurants and retail stores, have staunchly opposed the minimum wage. Romney rival Newt Gingrich, former Speaker of the House of Representatives, has embraced this view, arguing that a higher hourly wage is a "job killer," especially in the wobbly economy.

Congress has intermittently raised the federal minimum wage -- states can, and do, set their own minimums -- but there is no legal requirement that the rate change with the cost of living. This approach left the minimum wage languishing at $5.15 for a decade, from 1997 to 2007. It has since risen to $7.25.

The public, according to polls, broadly supports raising the amount in an economic climate where wages have stagnated or fallen, food and gasoline prices have risen, and wage disparity has become a fixture in the public dialogue. Newly released statistics about the depth of poverty in America also have fueled discussion, as well as deepening worry that limited economic opportunities are undercutting the middle class.

This may set the stage for Congress to adopt an automatically adjusted minimum wage, say some advocates.

"When Romney, Bloomberg and Christie all favor this, it is making some headway," says Paul Sonn, legal co-director at the nonprofit National Employment Law Project.

A conservative cause?

Some conservative foes are also aligning themselves behind a rise in the minimum wage, with a twist. Ronald Unz, the publisher of The American Conservative, says a higher minimum would "remove the lowest rungs on the employment ladder, thus preventing newly arrived immigrants from gaining their initial foothold in the economy."

It was not the government, but automobile pioneer Henry Ford, who Unz gives credit for the concept of a minimum wage. Ford doubled the regular wages of his assembly-line workers (to $5 per day) in 1914. Unz, a former California gubernatorial contender and political activist, described this as "a crucial factor in creating the prosperous middle class that eventually dominated America's 20th-century history" in the September issue of The American Conservative.

Such a "bold step", he concludes, "would help safeguard and maintain the national prosperity that men like Ford originally created."

Immigration aside, Romney and others have not made clear the reasons for their new openness on this issue. It may be as simple as appealing to low and middle-class workers who are looking for some hope as they struggle to make ends meet. But despite his 2002 campaign promise, the former governor Romney later declined to support legislation hiking the Massachusetts wage floor on grounds it would eliminate low-wage jobs.

Like the public, many labor economists back a rise in the hourly wage and consider it a boon to low-income earners when the economic recovery takes hold.

"There would be a multiplier effect in the economy," maintains Michael Reich, economics professor at the University of California-Berkeley, who has conducted several studies on the minimum wage. He agrees that the wage increase would trigger a decrease in hiring, "but that is offset by other factors such as reducing employee turnover, so net employment is the same."

Hiking the basic wage means more competition for jobs, he says, but notes that, contrary to Unz's argument, "it could also be an incentive for people to come across the border."

No quick fixes in the offing

A rise in minimum pay, though, would not be a quick fix for a decade of stagnating wages. If the minimum wage increases had been steady, supporters say workers would be earning about $10 per hour, enough to push up the minimum annual wage to slightly more than $20,000.

Starting in January, eight states that have their own higher minimum wage levels boosted their pay floors beyond the federally set $7.25 to keep pace with the cost of living. The state of Washington, for example, set its level at $9.04 per hour. Both Oregon and Vermont's rates now exceed $8 an hour.

While increases in other states were smaller, Sonn says that, in total, the average $15,080 yearly income of more than 1.4 million workers was bolstered by the states' actions. That will help "boost consumer demand and spur economic recovery," he argues, and help to infuse more than $10 billion into the economy.

A $9.50 hourly minimum would generate about $60 billion for such low-wage earners over a two-year period, according to research by the Economic Policy Institute, a liberal economic research organization.

Who is living on minimum wage?

Overall, a relatively small slice of the American workforce receives the minimum wage. Last year, about 1.8 million of the country's 73 million hourly-paid workers earned the minimum wage, according to recent figures from the Bureau of Labor Statistics.

About half of these minimum-wage earners are under the age of 25, and have little, if any, organized political voice. And studies examining the effects of increasing the minimum wage have differed, providing fodder to both sides in the past.

But as views begin to align, labor experts believe there is a better chance to link the hourly wage to the cost of living.

"Rather than being debated by politicians every three or five years," says Reich, "the minimum wage could be indexed so the amount is adjusted automatically.

"After all, Social Security is indexed, some tax brackets are indexed, so why not have the minimum wage do so as well?"

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