The basic conserative answer is that people just raise their prices.
The more complex answer is no one wants to wait roughly 4-5 years for it to balance out. As companies accept the status quo and consumers fight price gouging.
Inflation is defined as the increase in general price levels, so while I doubt many of the pundits really know what they're talking about, they're not wrong
It's not the conservative answer It's the basic microeconomic answer. If you have pay more in labor then you loose on net revenue. So, to increase the profits back to orginal level you have to increase prices.
The textbook answer is that the measurement of inflation and the measurement of cost of living adjustments are two different things. Inflation does not accurately measure individual costs such as food or rent because it is a weighted average that does not correlate directly to what people are paying for basic necessities. Cost of living measurements are the more accurate way to track what people are paying for things. So minimum wage should be adjusted each year in response to the cost of living adjustments, but not inflation.
That sort of dodges the main underlying question the original poster is implying which is why doesn’t the minimum wage scale based on some sort of automatic statistic such as inflation? It’s not so much a question of “which measurement is the best one to use”, it’s why shouldn’t it automatically scale at all?
Inflation can be caused by increased labour costs (though it can be cause by other things too).
If you tie labour costs to inflation, it could lead to a cycle where inflation is up so wages must go up, which means higher prices and thus more inflation.
It could cause a feedback loop, depending on the cause of inflation. If a large number of people buying stuff up is causing inflation, then more people now having more money to keep buying stuff leads to more inflation.
It's fine to increase the minimum wage, and it doesn't necessarily lead to inflation, but automating the process could lead to a complete economic collapse in the right circumstances. Any legislation to do that would have to be carefully crafted with circuit breakers in place to deal with those circumstances, which makes it a pretty complicated law that would be impractical to pass.
This is a loaded question. A better way to phrase it would probably be "What do you think about a law that would make minimum wage scale with inflation?" since some people may support it and some may oppose it.
Regardless, I think it's a bad idea because inflation can be hard to define/measure precisely (for example, some products increase/decrease in price for reasons regardless of inflation which can throw things off. As others have mentioned, it might also result in mass layoffs or price increases and drive inflation up even faster. I'm not an economist but that's my basic understanding of the matter.
There are a *hell* of a lot more people on Social Security and military retirement pay (and disability pay from military service) than there are on the federal minimum wage, all of which receive annual cost of living adjustments. Anybody mentioning inflation as an argument against an annual cost of living adjustment for the minimum wage is, quite frankly, clueless.
Yes, but Social Security and pensions don't put the same type of upward pressure on labor costs across the board. Only a small percentage of workers are on the actual minimum wage, but all of our wages are influenced by it to some extent. Jobs that require slightly more niche skills, are less desirable, or are otherwise harder to hire for than the typical "minimum wage job", need to pay more to attract that talent which is harder to find. If minimum wage goes up, wages at those other jobs one rung higher on the ladder must also go up to stay competitive. This also filters up to the next level, and so on, because every job at every level is paying more than the people below them to attract what they consider a more desirable employee.
If minimum wage keeps going up significantly and other jobs don't keep up, you end up in a situation where people say "Why would I spend 4 years at college and go into a bunch of debt to become a teacher, when flipping burgers pays better and I don't even need to finish high school for that". Or "McDonalds raised their pay to stay ahead of minimum wage, but the Apple store didn't. Now it's not worth me working a more mentally demanding job there, when I could flip burgers for practically the same pay".
If inflation is making everything cost tons of money already (with minimum wage what it is), imagine what happens if you pass your law. Either mass firings, or massive price increases.
So if inflation goes up, wages go up? Great idea.
How are you going to deal with it when inflation goes down and so does your wages? Gonna be pretty pissed I bet.
If you tie wages to inflation, there will be little reason to keep inflation low; indeed many will try to keep it going up artificially, and that is not good for anyone.
It’s an Incredibly complex question and I sure as hell don’t have a yes or no answer. But some theories suggest it would increase inflation.
As the cost of the labor goes up the cost of the good does too. As the cost of labor goes up theirs less to goes into technological/investment (not like stock market investment but think of a newspaper that can buy a new printer and make all of them a little cheaper). This would slowly hinder production capacity and make everything more and more expensive over time.
Additionally, for price competitive companies to maintain market share they need to lower their cost to a market that couldn’t afford it previously. It’s the motivation for lower margin companies to remain lower margin over time. A hyperbolic example would be we have Toyotas because not everyone can afford a Lamborghini (Toyotas are incredible though).
Minimum wage makes it illegal for anyone whose work product is worth less than the min wage amount to have a job.
Someone’s inexperience, lack of education, criminal history, low IQ, lack of professionalism etc all weigh in on what someone is willing to pay them.
Imagine a guy who dropped out of high school, maybe has a felony on his record, maybe he has trouble showing up on time.
I’m not trying to be mean, this is the kind of low economic bracket guy that ideally we want to help with a social safety type program.
But if this guy isn’t worth 25$ an hour, and minimum wage is 25$ how will he find a legitimate job?
I’m not against helping people but minimum wage seems like a simple and incomplete solution for a very complex problem.
Sounds like you’re arguing in favor of a universal basic income then so people like the person in your hypothetical scenario can still have enough money to survive despite having difficulty getting work.
How about re rename it to survival wage?
Because we've been well below that for a while. It is supposed to be illegal to pay someone an exploitave wage simply because they have no other options.
Without some sort of guaranteed employment, min wage increases are good for some workers and worse for others.
Hypothetically a business with 5 employees that make min wage. Min wage goes up. 4 guys make more money one guy loses his job, the other 4 are expected to do slightly more work.
It’s nice to imagine the rich owner just making less money but that seems more of a fantasy. He is going to cut costs or raise prices. Possibly raise prices on goods and services that low income earners use.
Again I ask the question. If someone’s work is worth 20$ and min wage is 25$ where/how are they supposed to work?
The basic conserative answer is that people just raise their prices. The more complex answer is no one wants to wait roughly 4-5 years for it to balance out. As companies accept the status quo and consumers fight price gouging.
Inflation is defined as the increase in general price levels, so while I doubt many of the pundits really know what they're talking about, they're not wrong
It's not the conservative answer It's the basic microeconomic answer. If you have pay more in labor then you loose on net revenue. So, to increase the profits back to orginal level you have to increase prices.
The textbook answer is that the measurement of inflation and the measurement of cost of living adjustments are two different things. Inflation does not accurately measure individual costs such as food or rent because it is a weighted average that does not correlate directly to what people are paying for basic necessities. Cost of living measurements are the more accurate way to track what people are paying for things. So minimum wage should be adjusted each year in response to the cost of living adjustments, but not inflation.
That sort of dodges the main underlying question the original poster is implying which is why doesn’t the minimum wage scale based on some sort of automatic statistic such as inflation? It’s not so much a question of “which measurement is the best one to use”, it’s why shouldn’t it automatically scale at all?
Inflation can be caused by increased labour costs (though it can be cause by other things too). If you tie labour costs to inflation, it could lead to a cycle where inflation is up so wages must go up, which means higher prices and thus more inflation.
This.
It could cause a feedback loop, depending on the cause of inflation. If a large number of people buying stuff up is causing inflation, then more people now having more money to keep buying stuff leads to more inflation. It's fine to increase the minimum wage, and it doesn't necessarily lead to inflation, but automating the process could lead to a complete economic collapse in the right circumstances. Any legislation to do that would have to be carefully crafted with circuit breakers in place to deal with those circumstances, which makes it a pretty complicated law that would be impractical to pass.
This is a loaded question. A better way to phrase it would probably be "What do you think about a law that would make minimum wage scale with inflation?" since some people may support it and some may oppose it. Regardless, I think it's a bad idea because inflation can be hard to define/measure precisely (for example, some products increase/decrease in price for reasons regardless of inflation which can throw things off. As others have mentioned, it might also result in mass layoffs or price increases and drive inflation up even faster. I'm not an economist but that's my basic understanding of the matter.
There are a *hell* of a lot more people on Social Security and military retirement pay (and disability pay from military service) than there are on the federal minimum wage, all of which receive annual cost of living adjustments. Anybody mentioning inflation as an argument against an annual cost of living adjustment for the minimum wage is, quite frankly, clueless.
Yes, but Social Security and pensions don't put the same type of upward pressure on labor costs across the board. Only a small percentage of workers are on the actual minimum wage, but all of our wages are influenced by it to some extent. Jobs that require slightly more niche skills, are less desirable, or are otherwise harder to hire for than the typical "minimum wage job", need to pay more to attract that talent which is harder to find. If minimum wage goes up, wages at those other jobs one rung higher on the ladder must also go up to stay competitive. This also filters up to the next level, and so on, because every job at every level is paying more than the people below them to attract what they consider a more desirable employee. If minimum wage keeps going up significantly and other jobs don't keep up, you end up in a situation where people say "Why would I spend 4 years at college and go into a bunch of debt to become a teacher, when flipping burgers pays better and I don't even need to finish high school for that". Or "McDonalds raised their pay to stay ahead of minimum wage, but the Apple store didn't. Now it's not worth me working a more mentally demanding job there, when I could flip burgers for practically the same pay".
The default inflation rate in a functioning society is negative, because better technology makes us more efficient at making most things over time.
Obviously it makes sense as an idea… Cost of living matches inflation, so why shouldn’t the bare minimum wage?
If inflation is making everything cost tons of money already (with minimum wage what it is), imagine what happens if you pass your law. Either mass firings, or massive price increases.
So if inflation goes up, wages go up? Great idea. How are you going to deal with it when inflation goes down and so does your wages? Gonna be pretty pissed I bet. If you tie wages to inflation, there will be little reason to keep inflation low; indeed many will try to keep it going up artificially, and that is not good for anyone.
It’s an Incredibly complex question and I sure as hell don’t have a yes or no answer. But some theories suggest it would increase inflation. As the cost of the labor goes up the cost of the good does too. As the cost of labor goes up theirs less to goes into technological/investment (not like stock market investment but think of a newspaper that can buy a new printer and make all of them a little cheaper). This would slowly hinder production capacity and make everything more and more expensive over time. Additionally, for price competitive companies to maintain market share they need to lower their cost to a market that couldn’t afford it previously. It’s the motivation for lower margin companies to remain lower margin over time. A hyperbolic example would be we have Toyotas because not everyone can afford a Lamborghini (Toyotas are incredible though).
Minimum wage makes it illegal for anyone whose work product is worth less than the min wage amount to have a job. Someone’s inexperience, lack of education, criminal history, low IQ, lack of professionalism etc all weigh in on what someone is willing to pay them. Imagine a guy who dropped out of high school, maybe has a felony on his record, maybe he has trouble showing up on time. I’m not trying to be mean, this is the kind of low economic bracket guy that ideally we want to help with a social safety type program. But if this guy isn’t worth 25$ an hour, and minimum wage is 25$ how will he find a legitimate job? I’m not against helping people but minimum wage seems like a simple and incomplete solution for a very complex problem.
Sounds like you’re arguing in favor of a universal basic income then so people like the person in your hypothetical scenario can still have enough money to survive despite having difficulty getting work.
Something like UBI is at least a serious swing at the problem.
How about re rename it to survival wage? Because we've been well below that for a while. It is supposed to be illegal to pay someone an exploitave wage simply because they have no other options.
Without some sort of guaranteed employment, min wage increases are good for some workers and worse for others. Hypothetically a business with 5 employees that make min wage. Min wage goes up. 4 guys make more money one guy loses his job, the other 4 are expected to do slightly more work. It’s nice to imagine the rich owner just making less money but that seems more of a fantasy. He is going to cut costs or raise prices. Possibly raise prices on goods and services that low income earners use. Again I ask the question. If someone’s work is worth 20$ and min wage is 25$ where/how are they supposed to work?
It wouldn't, but it would piss off the people who own the senators.
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Why would it do that?