Minimum Wage?

Question

Why is it important to raise if it will probably just cause inflation?

Answer 1

Increasing the minimum wage will cause some increase in the prices of services provided by minimum wage workers, but inflation is a measure of a basket of goods and services that are purchased, Since only a few of these are produced by low wage workers, it will have little. effect on inflation. Fed policy is much more important, and the increase in the money supply that resulted from the efforts to contain the mortgage crisis will have a much bigger effect. Even the new policy to produce bio fuels from corn effect inflation more than the minimum wage increases.

Answer 2

There are 3 problems with a minimum wage:

1) The inflationary pressure from paternalism - a phenomenon that has been overlooked is the 'ripple effect' that a rise in the mimimum wage causes. Lets consider a situation that someone makes the minimum wage, in this example lets say it's $5.00, and supervisor makes a marginally higher wage - $5.25. The second person makes about $500 more a year than the first. Let's now move the minimum wage to $5.50 - Both people get a raise right? Maybe not. Perhaps the employer can no longer affor both employees (together they cost $1500 more a year than they did at their previous wages) Another consideration is that the supervisor requires a marginally higher rate or may look for another employment option due to their perception of being underpaid now -even after a raise! This eventually will hurt every particpan tin the Economy.

2) the minimum wage doesn't support the very poor. They typically make between the minimum wage and a living wage.
There si a large amount of emperical evidence to this end. We want to help the poor but this is not the way to do it, this actually hurts them - which leads to my final point.

3) the minimum wage hurts people with limited skill sets and people that are less advantaged. People are typically paid what they are worth, in a marginal sense - meaning that if I can produce an aditional $50 in revenue, I can be paid, in theory, up to $49.99 and still be benificial. Some people do bring less than the minimum wage in productivity to the table - think of the high school part time worker or a grocery bagger. There are tasks/jobs that will go undone - mostly those of convienence that do employ teens and less advantaged people that will go without jobs with additional increases in the minimum wage.

Answer 3

I think you mean that firms, faced with higher labor costs, will increase prices. I would add that the argument also says that firms will reduce output and increase prices, depending on the shapes of the various supply and demand curves.

The debate about 'inflation' is probably not too relevant, that has more to do with the entire economy, and minimum wage workers and the firms that hire them are not a large part of the economy.

It is important to understand the costs of the minimum wage - the higher prices of those goods and the reduction in output and and hence employment in those industries. How many people will loose their jobs? How high will burgers go? The answer is, according to the latest economic research, is that the effect on unemployment is not measurable. Even if there is a rise in prices, it has little effect on output. In short, some small amount of money is going from the consumers of burgers to raise the minimum wage amongst the workers.

Because the benefits far outweigh whatever costs you think there are, that is a strong argument to have a minimum wage.

One could argue that the minimum wage helps workers get some of the monopoly profits that would otherwise accrue to the owners. I would argue that wages are sort of arbitrary, and that a rise in wages could stimulate the demand for technology and other ways to keep profit levels high.

Answer 4

Because politicians can then pander to the lower wage earners by saying they got them an increase, in actuality all they did was add to inflation. Also in many cases they took away jobs. If an employer was thinking of adding two people, but not the rate is that much higher he may only hire one. So that person who would have been making say 6 an hour, is now unemployed. I say we do away with minimum wage and allow the market to create fair wages, but that isn't a highly popular view.

Answer 5

It will temporarily give a little extra spending power to those that work for min. wage.
yes it has some inflationary effect as owners try to maintain their profits, while paying higher wages. The Markets of the industrial countries have become fairly efficient, so the higher costs to produce have to come from somewhere, Bosses pocket or higher efficiency in production which also might mean reducing staff to produce the same as before, (which is why it gets claimed that it will increase unemployment).
the result will normally fall in the middle of the combo.

Workers have more buying power = increase demand which will normally cause a rise in prices, long term worker is back to where he was in buying power.
Owners delay hiring trying to increase productivity to compensate so temporily less new jobs, or if job location is not important job gets exported to where it can be done cheaper, so lose of job locally, increased labor force somewhere else. And yes, inflation is the final settling of the monetary results

Answer 6

I agree with the majority that increasing the minimum wage does not increase inflation. It might if we were fully employed, but we are not.

Actually the impact of increasing the minimum wage has been found to lead to increased employment in many studies perhaps due to the resistance of minimum wage employers to hike wages (and increase cost) despite screaming inflation, if other employers are not required. Everyone knows that if they raise the minimum that it won't happen again for awhile.

Someone must have observed the evident truth that with so much increase in the cost of subsistence (food and fuel mostly) that our laborers would suffer productivity losses (sick thought).

Answer 7

I think min. wage causes inflation. I learned that inflation is PRIMARILY caused by printing too much money. But, I don't believe it's the only reason. Anyways, raising unemployment is superfluous. In fact, min. wage is superfluous is inefficient. With the study of economics being the study of how people with scarce resources, inefficiency is clearly a problem.

Answer 8

Raising minimum wage does not cause inflation. Inflation is strictly a monetary phenomenon caused by a growth in money supply without a corresponding growth in output.

Answer 9

In response to Shariq:

There are economic justifications for minimum wage laws. The minimum wage creates unemployment which, contrary to popular belief, is good in small amounts and would be catastrophic if non-existant (ask yourself how hard you would work if you were guaranteed to get a new job the same day if you were fired). Unemployment creates a cost to shirking which increases the productivity of minimum wage workers.

Answer 10

it will increase inflation only marginally. that is not the biggest impact it will have. whenever you introduce constraints in the market economy you are going to have consequences. Minimum wages are reglatory interference; hence they are not perfect. Its just for social and political reasons.