Minimum wage indexed to inflation???

[brimic]

I was reading the paper today and I came across something that made me think wait wut?! Danger ahead!
Obama wants to raise minimum wage to $9/hr then index it to inflation.

Won't this cause or at least contribute to an inflationary spiral as well as as an unemployment spiral?



http://www.slate.com/blogs/moneybox/2013/02/12/minimum_wage_in_state_of_the_union.html

[French G.]

Wow, that will be exciting once the inflationary pressure of digitally printing all this money catches up. OTOH, maybe he's brilliant. Give it a year and they'll all be millionaires. Then he can tax the crap out of them. 

[SADShooter]

Wow, that will be exciting once the inflationary pressure of digitally printing all this money catches up. OTOH, maybe he's brilliant. Give it a year and they'll all be millionaires. Then he can tax the crap out of them. 

Nice. 

Even if I were philosophically amenable to this idea, it's meaningless when the inflation calculations are disconnected from actual consumption prices (e.g. food/fuel/etc.).

[lee n. field]

I was reading the paper today and I came across something that made me think wait wut?! Danger ahead!
Obama wants to raise minimum wage to $9/hr then index it to inflation.

Won't this cause or at least contribute to an inflationary spiral as well as as an unemployment spiral?



http://www.slate.com/blogs/moneybox/2013/02/12/minimum_wage_in_state_of_the_union.html

What's called a "race condition".  

(Or maybe not.  I'll let real engineers comment.  Take the output, feed it right back as a control on the input, seems an unwise strategy.)

Would probably appeal to the sorts of people that don't see the inherent flaw in chain letters and Ponzi schemes.

Even if I were philosophically amenable to this idea, it's meaningless when the inflation calculations are disconnected from actual consumption prices (e.g. food/fuel/etc.).

That too.

[AZRedhawk44]

That's downright Argentinian of him...

[Boomhauer]

Well he's already got businesses cutting employees down to 29 hrs a week to avoid the healthcare bullshit...gotta make it law to give them mo money!

European socialists just hit stuff straight on by limiting employment hours and such. American socialists like to kill jobs the backdoor way.

[TommyGunn]

Heard today that if the minimum wage had been indexed to inflation in 1935 the MW would be less than it is today ....BUT.....if it had been indexed in the '50s it would have been more than today.
Ideally we wouldn't have a min wage.  That way teens and college kids would have a much easier time finding gainful employment.


NOTE: my first job paid sub/rosa and was below minimum wage but it had great hours and the employer was a friend of the family! 

[MillCreek]

I would say that due to action from our state Legislature a while back, Washington has had the highest minimum wage in the country.  Despite much wailing and gnashing of teeth from the business community at the time, as far as I can recall, it has not had much of an effect on either raising unemployment or inflation rates in the state.

[birdman]

I would say that due to action from our state Legislature a while back, Washington has had the highest minimum wage in the country.  Despite much wailing and gnashing of teeth from the business community at the time, as far as I can recall, it has not had much of an effect on either raising unemployment or inflation rates in the state.

It had no effect on population average employment RATE.  In sub-populations it did, as it did in total employment growth.  As for inflation...well, duh, Washington doesn't have its own money supply.

We are talking NATIONAL and employment total, not unemployment rate.

[Tallpine]

Heard today that if the minimum wage had been indexed to inflation in 1935 the MW would be less than it is today ....BUT.....if it had been indexed in the '50s it would have been more than today.
Ideally we wouldn't have a min wage.  That way teens and college kids would have a much easier time finding gainful employment.


NOTE: my first job paid sub/rosa and was below minimum wage but it had great hours and the employer was a friend of the family! 

My rough estimate is that if you indexed minimum wage to 1972 when I graduated from high school, it would have to be about $15 to $16 an hour right now. 

[brimic]

That's downright Argentinian of him...

Should do a good job of eventually wiping out the savings of that pesky middle class.

[MillCreek]

It had no effect on population average employment RATE.  In sub-populations it did, as it did in total employment growth.  As for inflation...well, duh, Washington doesn't have its own money supply.

We are talking NATIONAL and employment total, not unemployment rate.

I am sure you can appreciate that there are regional variations in employment and inflation rates.  Again, to my recall, raising the minimum wage in Washington did not appreciably increase either.  Now as to the macroeconomic effects for the economy as a whole, raising the federal minimum wage may cause some transitory changes for inflation or unemployment, but I hardly think it will cause a collapse akin to Argentina.

[Balog]

Among hourly workers, something like %98ish make more than the minimum wage. So it'll have a limited overall effect simply because it touches so few folks. It'll still screw the places that pay minimum (or would have employees if they could pay the actual economic value of the worker).

[AZRedhawk44]

Should do a good job of eventually wiping out the savings of that pesky middle class.

I'm doing a good job of that on my own...

Ever since I bought my motorcycle last year around this time, I've been struggling to rebuild it.  Bought the bike cash and obliterated the savings account.  Of course, I've also bought an ACOG, and a very nice AR to go under it, and a Beretta 92A1, and a pair of XD's, and...and...and...

Stuff should settle down going forward here.

[Azrael256]

What's called a "race condition".  

(Or maybe not.  I'll let real engineers comment.  Take the output, feed it right back as a control on the input, seems an unwise strategy.)

Would probably appeal to the sorts of people that don't see the inherent flaw in chain letters and Ponzi schemes.

That too.

That's a positive feedback loop.  Race conditions are a little different.

Happily, inflation only applies to people who starve while shivering in the dark.

[birdman]

I am sure you can appreciate that there are regional variations in employment and inflation rates.  Again, to my recall, raising the minimum wage in Washington did not appreciably increase either.  Now as to the macroeconomic effects for the economy as a whole, raising the federal minimum wage may cause some transitory changes for inflation or unemployment, but I hardly think it will cause a collapse akin to Argentina.

Inflation = change in money supply vs change in GDP.  By definition both effects are national only.  You are referring to the effects of inflation, namely price increases.  Apologies, but treating prices as the measure of inflation enables the .gov to get away with the BS it does.

It won't cause an agentinian collapse, but it won't help either inflation or employment, and will likely make both worse.

[AJ Dual]

Inflation/ruining the economy is the point now. I'm convinced.

It's not just ineptitude, denial, or emotional clinging to the "wrong" economic/political theories. If you have money, inflation is the way they can take it from you without any legislative process at all.

[slingshot]

Obama is just trying to cater to his voters.  Raising the minimum wage (what 23%?) will increase the jobless rate for people under 25 years old again.  It only hurts the people he claims to be trying to help.  Then the people who make $9 an hour will complain as they earned their pay rate....  bad mojo. 

[birdman]

Obama is just trying to cater to his voters.  Raising the minimum wage (what 23%?) will increase the jobless rate for people under 25 years old again.  It only hurts the people he claims to be trying to help.  Then the people who make $9 an hour will complain as they earned their pay rate....  bad mojo. 

That's a good point.  By increasing the minimum, people don't realize it increase upward pressure on wages cross the board.  Someone making $9 would now be making the minimum, even if they worked up from the previous minimum, and so on and so on.  Since it effectively revalues wages upward, from the perspective of finding/securing employees, it also increases the pressure for an employer to find ways of increasing productivity with the ones they have, or replacing ones that leave if their wages can't increase with alternative means.  Throw in the pressure from obamacare to minimize hours and/or full time employees, and its a Big Crunch especially for small businesses that rely on pools of cheap, unskilled labor.

[Balog]

I am sure you can appreciate that there are regional variations in employment and inflation rates.  Again, to my recall, raising the minimum wage in Washington did not appreciably increase either.  Now as to the macroeconomic effects for the economy as a whole, raising the federal minimum wage may cause some transitory changes for inflation or unemployment, but I hardly think it will cause a collapse akin to Argentina.

Ok, honest question here. How high do you think minimum wages can be raised before it did have an impact?

[Hutch]

The point at which an impact is felt...  Some already feel it.  The .gov can't decree that workers earn 9 bucks an hour, but they can decree it.  Those that can't earn it will become (or remain) unemployable.  Right now, we have .gov edging further into the minefield of Stalinist/Fascist economics.  The further they edge out there (min wage, fuel economy standards, Obamacare, ad nauseum), the more convinced they become of their infallibility.  Hell's bells, the only reason they don't mandate $25 a hour is that they think some of the beneficiaries rise might become Republicans.

[slingshot]

If the minimum wage is increased to $9/hour, I will have to increase prices immediately.  There is tremendous pressure to lower costs.  An arbitrary increase in the cost of labor, and it would be nearly across the board for unskilled labor, would have immediate impact on profits.  Material costs would also increase.

The president seems to think that everyone is trying to rob the other guy, but what actually happens is that when labor prices increase, your profit goes down except in industries that do not have to compete.  When your profit goes down and my profit has been going down for 5-years, you begin to question whether or not it is all worth the effort.  If you are wealthy, you may choose to just stop participating in the race.  Many businesses will have no choice and they are the ones that will suffer.  Regardless of what "they" say about passing on costs, it doesn't happen quite like that.  It would probably take a good year before you might be able to pass on your extra costs in the form of fees or markup.  Until then.. you sweat and wonder if you are going to be able to survive.

As far as indexing the minimum wage to inflation, that is what has caused a lot of the problems with the federal budgets and entitlement programs.  And yet... they want to do it with the minimum wage.

A visit to the gas station or the grocery store demonstrates what has happened to prices.  Bread for example... Walmart sells their cheap wheat bread here for about $1.29 per loaf.  It used to be $1.05/loaf only a couple years ago.  More premium bread lines have gone up and up in price.  Bread is only the example... these increases are happening eveywhere on basic costs to subsist and materials used.  That is the argument for the minimum wage increase.  The reality is that a substantial increase in minimum wage will cause businesses to close their doors and cut back on labor.  Where I might have used 4-5 workers, I would use 3-4 and I probably would get the job done almost as quickly.  I use extra people to help them.  Those "hand outs" will be cut immediately.  The remaining people would have to work harder or loose their job because there are lots of people around willing to work for $10/hr.

[MechAg94]

This is just Obama's plan for the national debt.  Make it worthless in 10 years. 

[MillCreek]

Ok, honest question here. How high do you think minimum wages can be raised before it did have an impact?

I have always found this article and the associated article series and internal links to be of interest on this debate: http://economix.blogs.nytimes.com/2012/09/05/why-the-minimum-wage-doesnt-explain-stagnant-wages/

In a nutshell, it says that increasing the federal minimum wage does not seem to have a major impact on employment and it effects a small number of workers.  Putting on my MBA hat for a moment, if there are businesses that claim they will go under as a result of a small incremental wage increase such as this, perhaps this is merely the free market at work weeding out inefficient businesses.  And before someone says that a government-mandated wage increase is not the free market, I would agree but ask if this means that the business never gives wage increases voluntarily and did they fail if they did?  Other than individual anecdotes, I have not found a whole lot of data from impartial sources supporting the contention that state or federal minimum wage increases cause wholesale unemployment and business failures.  In Washington, where we have had a higher minimum wage for some time now, fast food restaurants and other businesses with minimally-qualified and minimally-paid labor still seem to be operating.

Now mind you, I am not a fan of a government-mandated minimum wage, preferring to let the free market sort this kind of thing out. But we do not have and never will have a perfect free market. I do not see this is the distant hoofbeats of the Four Horsemen of the Apocalypse.  Others may disagree.

I sure hear what Slingshot says about not being able to pass on your costs.  Healthcare is the very definition of that.  And there has been severe contractions and layoffs in healthcare in recent years, but minimum wage mandates did not cause or contribute to that.  

[Ron]

IMHO the goal is to replace the minimum wage with a livable wage as a base. Maybe min wage in conjunction with other government entitlements, subsidized housing, food cards, Obama phones, free cheese and butter 

This begs the question, is every job that needs to be done worth enough to warrant that level of pay?