This is one of the questions on the Maine ballot. Question four involves not just a raise in the minimum wage, but cost of living increases. This seems like a good idea on the surface, but I have been hearing a lot of opposition to it. Is it really a good idea, or will it be too hard on businesses?
I can’t tell you if the current minimum wage is too high or too low, or if we should even have one at all. But indexing it to inflation sure does keep us from having the same damn argument every X years as it deflates. Big jumps are disruptive; look at the overtime changes that are coming online after decades of inflation.
It’s a terrible idea.
Raising the minimum wage exerts inflationary pressure on the economy. Indexing the wage to inflation creates a positive feedback loop. In my opinion, it would carry a nontrivial risk of causing hyperinflation.
Zimbabwe in the 1990s, and Weimar Germany, were bad places to be poor.
This is close to my position. It’s possible to have a MW that is too high, causing inflation (although I’m not sure that’s ever happened in history,) but if so, then when and if it happens is the time to cut the MW. If there are enough people out of work then they should be clamoring for legislators to do that. If there is close to full employment then the MW isn’t a problem.
If the MW is too low then indexing works as well since we would be debating raising the MW from $12 to $15 instead of $10 to $15 which is a more drastic change for employers.
I think it should be indexed. Big sudden changes aren’t good for anyone. Much better to see $0.15 raises per year than $5.00 once a generation.
I think the minimum wage is mostly a bad idea (for reasons that have been hashed out plenty of times before), but since the political will is that we’re going to have one, indexing it to inflation is probably a good idea.
Most laws with monetary targets should be indexed to some measure of inflation, unless the goal is for the real value of the target to slowly decline over time.
prices rise—>minimum wage rises
minimum wage rises—> prices of things produced with minimum wage labor rise
prices rise—>wages rise
wages rise—>prices rise
The proposed solution makes the problem worse, not better.
Changing the minimum wage does not change anyone’s bargaining power relative to the rest of the players in the economy.
Those who could get a thousand times minimum wage will still be able to get a thousand times minimum wage.
Those who could only get minimum wage will still only be able to get minimum wage.
There is nothing magical about the dollar. If you deliberately reduce its value in the labor market, you cannot expect it to retain its value in the food market, or the housing market, or the healthcare market.
**Is indexing minimum wage to inflation a good or bad idea?
**
Minimum wage is a bad idea, so by default anything based on it is a bad idea.
I would like to see a cite that minimum wage has caused wage-price inflation.
People at the bottom don’t have much bargaining power to begin with, and that is why minimum wages exist. By some calculations, Walmart costs the government $6 billion in aid for it’s underpaid staff - that is corporate welfare. Minimum wage may not be the most fair fix, but it is an easy one that helps the people who need the most help (among those who can work).
Wage driven inflation is probably one of the best kinds of inflation you can get if you have to have inflation at all. I doubt that the minimum wage has much inflationary effect because it increases the national payroll taxes collected by so little. Just not enough extra dollars involved There are around 15 million people earning the minimum wage. If there was 3% inflation (a large number by today’s standards but not historically), each of those people would earn an extra $0.22/hour or $440/year. 15 million times 440 is about 6.6 billion. Our GDP is like 18 trillion dollars. So that would affect 0.03% of our economy, it doesn’t even grow it so much as it changes who has the money, shareholders or minimum wage earners.
The minimum wage doesn’t affect enough people for it to have anything close to the effect you seem to think it has. If EVERYONE was making the minimum wage, then you might have a point. As it is, you are magnifying the effect of inflation adjusting the minimum wage by several thousand of percent.
All economic policy should be delimited in real rather than nominal amounts. Otherwise, you get absurdities like the 7th Amendment.
I’d disagree. I think a minimum wage is a bad idea, too, but an inflation-indexed one is a less-bad implementation of it than what we’re currently doing.
Hmmm, I think I’ve changed my mind a bit on the anti-MW side. Now, I think that, on balance, the MW is a good thing and should be indexed to inflation (where it should be between $10 and $15 I am not sure about.)
However, if it is a given that a minimum wage is a bad thing, then the wise thing to do is not do away with the MW, but freeze it at its current level and let inflation gradually erode it! You won’t have as sudden a shock to the system.
I used to like the MW. Of late my thinking has changed. I think we have a general problem that we have increased the cost of living in our society in general beyond the value of the labor of those at the lowest end of the scale. Some say tough, their labor isn’t valuable, so they should just suffer. Another approach is to subsidize their cost of living (health insurance subsidies, food stamps, rent support, etc. etc.) Another proposed solution is the MW – make sure anyone who works at all makes a minimum amount so they can cover their cost of living themselves. In my opinion the MW unfairly burdens those who would employ those at the lowest level, extracting the value they do have to offer, but charging them with the burden for solving the whole problem. I do think the problem needs to be solved, but I also think that the burden should be shared more equitably. Two other approaches that could also address the problem, but share the burden more equitably could be the EITC or some sort of universal basic income.
The freedom for prices and (inflation-adjusted) wages to vary is good. Minimum wage is good. How is it possible for two opposite things to both be good? You have to exploit both goodnessess — Nobody ever said optimizing an economy is easy.
If MW is NOT tied to inflation and there is a slight inflation, you “have your cake and eat it too.” You’ve underpinned the lowest wages, yet still allow a slight downward real movement and can revisit the issue later.
Protip: If you respond to simple questions about MW by raising the specter of Zimbabwe-style inflation, serious people will only laugh at you.
That’s true, to a degree, but also, from a different point of view, since most people don’t have two major jobs, all taxes on labor and its results, be it income tax, payroll tax, unemployment tax, and even taxes on the profits generated from the labor, can be considered a tax on that economic activity.* Since taxes on minimum wage workers is low, the employers can also be looked at as receiving the benefits of their low taxes. As opposed to, say, hospitals or IT shops, where a higher percentage of the economic activity generated by a doctor’s or a programmer’s employment goes to taxes. So in effect, the fast food industry, for instance, as a whole is taxed lower than high tech industries.
And that’s even before considering those who get paid so little that they’re on government assistance, which is in effect letting government subsidize their employment. So the requirement to pay MW is balanced by the low tax burden of the employment in general.
*Consider the payroll tax. You could “shift” the tax burden of the 15% payroll tax entirely to the employer and then complain about huge taxes on the employer, or entirely to the employee and then complain about how minimum wage workers pay 20% tax before the EITC, but the amount of money everyone has at the end of the day is the same! (Barring weird situations like absolutely minimum wage workers in which case transferring the taxes to the employer would in effect increase the minimum wage.)
I’m seeing several ‘minimum wage is bad’ statements here. But I’d want to be shown some real data before I’ll believe that. Otherwise those are statements of religion and not economics.
A bad idea. There is massive unemployment now of uncounted people who want to work and this just adds to it.
When I say massive unemployment I am using the % of adults in the population actually working which is at historic lows, not the unemployment stats.