> If this were really so why would there be a schedule to phase it in slowly over 7 instead of immediately? I think part of the reason is that it is expected for natural monetary inflation to cancel out the effect of the min wage increase. If we assume 2% target inflation from the FED then that would be a 15% reduction in buying power of the dollar, reducing the burden on businesses for the increase in wage price.
All things being equal? Come on...I doubt it. The inflation will certainly be a bit of help to the businesses, but don't forget that the status quo has been raising the minimum wage piecemeal, and the Washington minimum wage is at quite a differential from Seattle. Also, don't forget that once Seattle's minimum wage is in full effect it's chained to the CPI, so it's not just a raise on the minimum wage it's a permanent minimum wage.
While the overall impact of minimum wage increases on prices is far from settled, history has not shown it to lead to the catastrohic increases that are oft-foretold by opponents.
For instance, one full year after Washington's wage increase, we aren't seeing marked price increases [0].
If the effects of the wage increase on businesses was as profound as the doom-sayers wanted us to believe, then a year is certainly more than enough time to have seen them.
>they can hire fewer people
An expanding economy (which is partially fueled by higher incomes), helps to offset displacement of workers. Further, it's not as if businesses were seeking to hire workers they didn't need in any case. In fact, the ever-striving for optimal efficiency and productivity combined with automation is largely to blame for the lower labor demand/stagnant wages that precipitated the need for an increased minimum wage in the first place.
> Increasing the minimum wage from 5 to 50 dollars is unlikely to cause a 10x inflation, it more likely would cause a 3x or 5x inflation.
I' guessing it would rather create massive unemployment, and subsequently be cancelled. Think about it - middle-class people are ok with paying $4 for their Starbucks coffee, but if they were to pay say $10 (because the baristas salaries just tripled), probably a lot of them would cut back on them. Maybe even Starbucks would disappear altogether. Multiply that effect across all industries hiring minimum-wage workers. It would be a train wreck.
>Specifically they rise until the poor folks must work at a low wage to survive again.
What are you basing this conclusion on? If what you say is true, minimum wage increases would be worthless as they would just be swallowed by inflation. However, studies on the topic show this isn't true. Minimum wage increases have a negligible impact on inflation. This should be obvious because minimum wage positions do not make up the entirety of the labor market and the labor costs do not make up the entirety of business costs. So why would all prices increase in pace with the minimum wage?
>The point remains that it’s harder to find cheap employees. So the cost of labor goes up. So prices rise. Specifically they rise until the poor folks must work at a low wage to survive again.
I didn't say there would be no inflation. I said inflation would be progressive in that it wouldn't have much of an impact on stables in which demand is inelastic and working class people spend a relatively higher percentage of their income.
> but, practically, when you increase the minimum wage, the poverty jobs will disappear
If we're talking about raising the minimum wage arbitrarily high, then this is true.
But this argument also gets made a lot when we're talking about a specific proposal (such as $15). For a specific proposal this argument is not always true.
It was raised a ton in Seattle when Seattle was considering a $15 minimum wage. Endlessly. The main argument was that it would devastate employment for the jobs it was supposed to improve.
Then the minimum wage increase passed and it didn't do that. Employment in those jobs actually went up slightly (probably not a casual increase, probably more coincidental). But it certainly didn't devastate the employment in minimum wage jobs.
So, the argument is one that feels compelling since it is true in the extremes. But it needs to be evaluated with the facts of each proposal.
>Out of curiosity, what do you suppose are the long-term effects of raising minimum wage?
* An increase in inflation but nowhere near enough to offset the rise in wages at the lower end.
* An increase in growth as the money multiplier effect kicks in.
* No real change in employment.
* Share prices fall and lowered earnings projections for classes of business that rely on minimum waged labor.
* As a sort of general guide, look at Australia.
>If you were a landlord managing an apartment building, how much do you charge for a unit? If all of your tenants suddenly make twice as much money as they did, how long before you double their rent?
It depends. This does not happen in a vacuum. If there are a lot of apartments coming on the market at the same time rent could stay the same or even go down.
Every business is subject to competition which would moderate the effect of inflation and tons of businesses that manufacture often respond to an increase in demand by raising production rather than prices (e.g. car manufacturing).
If it went up to $20 I'd project something like 4% inflation.
>If a McDonalds needs to pay all of its employees twice as much money, how long before they double their food prices to make up the difference?
If you want to see what happens to McDonalds, look at Australia:
They A) raised the prices, B) raise the quality, C) actually kept the big mac price more or less the same, C) are facing competition from nicer restaurants (people have more disposable income and use it in restaurants other than el cheapo mcdonalds).
>I feel like the working poor in this country get a terrible deal in this world - we definitely need to make conditions better. But does raising minimum wage actually do that in the long run?
Yes.
>Or does it just increase inflation and destroy any savings the poor might have?
The poor have debts, not savings. Demand pull inflation caused by increased wages is just about the best possible outcome for them, but it is HORRIBLE for the rich and the rich have a very well oiled propaganda machine. Hence the "why don't you propose solutions" crowd and the downvotes on actual solutions ^^.
> Raising the minimum wage allows for a (very) short term benefit, but in the medium and long run, it drives inflation up.
This is probably strictly true as written, but misleading, as it also provides a medium and long term benefit, as it (alone) drives inflation up less than the ratio by which the minimum wage was increased.
> The minimum wage and inflation are effectively proportional.
No, they aren't. Even price levels, which could be more reasonably expected to have some relation to minimum wage, aren't simply proportional. If inflation was proportional to minimum wage, places that didn't have a minimum wage would have zero inflation; if price levels were proportional to minimum wage, places that didn't have a minimum wage would have zero price levels. Neither of these is the case.
>3. Although not entirely conclusive, the data from the largest increases does seem to show spikes in the minimum wage. For example, the University of Washington released their study on the impact of Seattle raising their minimum wage from $11 to $13 per hour, and found that the reduction in hours was 3 times higher than the increase in wages, meaning minimum wage workers lost $125 per month in earnings[1]. By contrast, the best studies which show no effect covered smaller increases or increases to a lower level (as a % of median wages).
The study is highly flawed. Among those flaws is that large businesses in Seattle have their minimum wage increase faster than small businesses. The UW study excludes multi-site businesses, many of which are classified as large and which contain basically half of the low paid work force. This means the UW study sees a totally expected shift of low paid workers from small businesses to large as a total decrease in employment among those low paid workers.
> Minimum wage should be going up all the time to keep it inline with inflation. That's the point of minimum wage.
Except that if you adjusted the minimum wage in 2005 to account for inflation, you'll only get $7.93 today[1]. I doubt the people clamoring for a $20 minimum wage today are doing it on the basis of "keeping up with inflation".
>>15 USD is still less than if you had adjusted the original minimum wage for inflation, so come on.
This is a myth that is often repeated, but I have yet to see it proven.
The Original Federal Min Wage was passed in 1938 and was $0.38 per hour, Adjusted to 2021 that would be $7.14
In 1981 it was raised to $3.35, in 2021 dollars that would be $9.76
In 2009 it was raise to where it is today, $7.25 ($0.66 lower than a pure inflation increase should have been) and is 9.26 in 2021 dollars
So if you want to do a pure inflation adjusted min wage it would be no more than $10 not $15
I can find at no point in the history of Federal minimum wage would have wage inflation adjusted be more than $15/hr today. I can debate the merits of minimum wage, the ethics, etc, but we have to be having a debate with actual facts not political talking points.
>Then the rents of those 1BR apartments would rise to capture that new minimum wage.
This is commonly expressed as a consequence of raising the minimum wage, but in the most nuanced discussions of inflation that I've been exposed to, people are mindful of the fact that inflation ripples out into different segments of the economy in different ways.
I think the most plausible outcome is that certain segments of the economy function as shock absorbers, which take the hit of inflation disproportionately as the economy rebalances itself and relieves pressures on segments of the economy that were being squeezed unsustainably hard.
And so there is indeed a ripple effect of raising the minimum wage, namely there's more money to spend, but it radiates out into the economy in disproportionate ways, and can be a net benefit to wage earners because prices on critical necessities may rise, but not in proportion to the rise in wages.
> As many have pointed out, the minimum wage in many places has been eroded for years by inflation, so increasing it is really just making up for a lack of indexing on it.
The last minimum wage hike was in 2009, when the minimum wage was increased to $7.25. Inflation adjusted to 2019 dollars, that would be about $8.70.
In 2016, both main Democrat candidates supported a $15 minimum wage, which would be an increase of around 10X the required inflation adjustment.
What is it that you were saying about arguing in good faith?
> Minimum wage increases directly affect the purchasing power of all through price inflation
You're economically savvy enough to realize that increased purchasing power causes inflated costs with more money chasing goods/services, and you're zeroing in on a minimum wage increase from $11 => $15/hr instead of, I don't know, tech worker salaries?
Maybe you know something I don't, because I'd guess the effect from the former isn't even close to keeping the class of people it benefits at purchasing parity.
"There are several problems with this simplified view of the economy. Namely that the inflation rate is not realistically tied to minimum wage in any way."
'Simplified' is believing that raising the minimum wage to $15/hour is a great solution to an increase in spending power (as opposed to a person learning a new skill and increasing their own value).
My view is complicated and nuanced and displays the unintended consequences of a raise in the minimum wage.
What do you think will happen when the costs of everything in a supply chain of a company is doubled? They will pass it onto the consumer.
When the majority of companies do this (which will definitely happen), everyone's spending power is decreased. The dollar doesn't go as far as it used to.
Realistically, it's hard to see how inflation isn't tied to a raise in minimum wage.
> Its also worth noting that practically no businesses close when minimum wages have been increased in the past.
The problem got pushed somewhere, but where?
Very rarely does the owner of the business just eat the cost except in the very short term. If the business doesn't close usually one of two things happen:
(1) there are fewer hours available because books need to be balanced. Some workers that are able to keep their hours do better at the expense of those whose hours are cut. Basically this ends up being a wealth transfer between some hourly workers and others.
(2) prices eventually go up and cause localized increases in prices. Within two to three years you end up with the situation where that new higher minimum wage has about the same purchasing power locally as the previous minimum wage had.
> Yes, there are some circumstances in which labor ends up more concentrated after a minimum wage hike, but other circumstances in which that is not the case.
But that's what I'm saying. Minimum wage is ridiculous because there are alternative policies that don't do the bad thing at all, not even sometimes.
>That could theoretically increase unemployment in some industries with razor thin margins, but it's far from a given.
It's not a given when you're talking about a small region like Seattle. However, increasing the minimum wage to the entire US would dramatically increase unemployment in the poorest areas. The minimum wage is why territories like American Samoa and Puerto Rico have the highest unemployment.
^_~ You might not have researched that. There are studies that suggest net-positive impact, but there are also studies that suggest change for the worse.
> And the explanation is easy, trivial even: people who eat at restaurants have more money to do so.
Minimum wage earners aren't going to be investing in increased production capacity. Best case scenario, something that was going to be consumed by the rich gets consumed by a minimum wage earner instead. Middling case scenario, something that was going to be consumed by the middle class isn't produced. Worst case scenario, less investment and we have a little bit less to go around in 10/20 years.
None of those 3 is catastrophic, but it is very unlikely that minimum wage rises are a big-picture win. The idea that even with a minimum wage increase a poor person could out-compete a member of the middle class for any good or service is optimistic.
All things being equal? Come on...I doubt it. The inflation will certainly be a bit of help to the businesses, but don't forget that the status quo has been raising the minimum wage piecemeal, and the Washington minimum wage is at quite a differential from Seattle. Also, don't forget that once Seattle's minimum wage is in full effect it's chained to the CPI, so it's not just a raise on the minimum wage it's a permanent minimum wage.
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