Probably because you don’t need the free money to live comfortably.
As for immigration, you know where I stand on this, and it has nothing to do with economics.
How would a minimum wage cause inflation?
Purely anecdotal, but when I was practicing in rural america, I had several patients who worked full time at wal-mart. All adults, all supporting families, and all on Medicaid.
We already have a minimum wage, so it can’t cause inflation in the sense that it would just cause some constant inflationary force.
However, it would seem that by raising the minimum wage, you would cause two forces which would work together to create inflation, until it canceled out the change you made.
First, suppose that I work a job where I make $10, instead of minimum wage. If minimum wage gets raised to $10, I’m suddenly making minimum wage. That will likely prompt me to ask for a raise, since my job (presumably) has more value than the minimum wage jobs which were until very recently being paid less than I was.
Second, by increasing the minimum wage, you are essentially creating more demand for goods, by giving that section of the market more money to spend. Certainly, this in itself is not inherently bad by any stretch of the imagination, that increased demand with no increase in supply will result in increased prices. This seems as though it will have an inflationary effect.
So, this seems as though raising the minimum wage would have a short term effect of temporarily raising the income of that section of the workplace, but that the rest of the economic forces at play (that is, the rest of the workforce who makes more than they do, and the supply and demand forces in the market which govern the prices and thus the buying power of the money earned by those workers) would eventually just adjust the overall system to negate the increase of the minimum wage and then you’d be back where you started.
Not really bad, I guess. Just kind of futile, unless your goal is that temporary bump.
Inflation is demand for goods for services vs. supply as exhibited in the ratio of available dollars to available goods and services.
The overall supply of money doesn’t change; the overall supply of goods and services doesn’t change. Where does the inflation come from?
What part of my previous post did you disagree with, Jason?
The part where you made up a scenario where the overall money supply remained unchanged yet overall inflation occured. It’s kind of like how you don’t really need to exhaustively work through the details in a math problem to know the solution’s wrong if 1 = 2 at some step.
So you didn’t really think about it?
In answer to your question of “where does the inflation come from”, I would suggest that it would be a localized price increase of things bought by the section of the market where you are injecting additional resources (the workers at the lower end of the payscale) and while creating a localized price decrease in the sections of the market where you are reducing resources (the employers).
So, you wouldn’t have an overall inflationary effect across the entire economy, but certain price indexes would likely rise. And, unfortunately, the prices that are going to rise are the ones that are being affected most directly by those folks you are trying to help.
I mean, on some level you are intentionally increasing demand… you want to give money to those people, so that they can buy more stuff. You have to understand that this will result in increasing prices for the goods they are purchasing.
Do you think that they’ll just buy more stuff, but having all those people buying more stuff isn’t going to affect the markets in which they are buying that stuff? How could that work, Jason?
Is this going to fall back onto another discussion where we argue whether or not having to pay more for the stuff you buy constitutes “real inflation”? Cause that is gonna be kind of silly, I think.
Yes, you wouldn’t; you were wrong to call it inflation. “Relative prices for stuff poor people buy might go up by some unspecified level in the short term, and then bounce back” is not inflation. In terms of price indexes, the rearranging of purchasing power from everyone else to minimum wage workers:
Short term
- Society can’t rearrange it’s production plans overnight, but the minimum wage takes effect immediatelly. Demand for the subsection of goods is up, supply is the same.
- The market clears by slightly increases the prices of low-wage worker consumed goods and services.
- The market also clears by slightly decreases the prices of everyone-else consumed goods and services.
Long term
- Society rearranges its production plans towards the minimum wage consumption basket.
- The market clears by reverting the previous price changes as supply goes up for low-wage and down for everything else.
So, you wouldn’t have an overall inflationary effect across the entire economy, but certain price indexes would likely rise. And, unfortunately, the prices that are going to rise are the ones that are being affected most directly by those folks you are trying to help.
You have a citation for this, right? I mean surely some economist in the history of the universe has checked this:
So, this seems as though raising the minimum wage would have a short term effect of temporarily raising the income of that section of the workplace, but that the rest of the economic forces at play (that is, the rest of the workforce who makes more than they do, and the supply and demand forces in the market which govern the prices and thus the buying power of the money earned by those workers) would eventually just adjust the overall system to negate the increase of the minimum wage and then you’d be back where you started.
If everyone got the minimum wage, this would happen; you’d effectively be saying “instead of paying everyone $30 an hour, you must pay everyone $60 an hour.” The proportion of workers covered by the minimum wage is small, however, so that’s not the case.
But that is, potentially, exactly what could happen. Everyone bases their wages on the guy below them, as they notice that the guy below them got more they attempt to push their wages, etc, etc. This sounds very much like cost-push inflation to me (although the idea may be antiquated).
If he means it would cause inflation proper, he’s insane, but I think it would totally cause wage inflation. I’m also ok with that.
Unfortunately it doesn’t work that way in real life. On one side you have social conservatives who refuse to provide money that could possibly be used for anything they consider immoral; and on the other side there are social liberals who believe society owes people a helping hand even when they’ve caused their own problems. This is why, to answer your original point, you don’t see the concept being espoused in today’s political landscape. It would simply piss off both extremes. Even if there’s a middle group that would agree with you, upsetting the extremes is a great way to get negative press, and that’s political suicide in most cases these days.
Yet another thread where conservatives argue that paying sub-poverty wages is a moral right of employer, and that any minimum wage increase would actually harm these workers. Then someone posts studies from countries with higher minimum wages where this didn’t happen, where minimum wage increase in various counties and states had a positive impact on this group of workers and caused no change in unemployment.
This is promptly ignored. What is it about the modern conservative mindset that rejects statistical evidence from widespread studies in favor of a anecdotes and theories?
No, you just have to be quite careful who you define as a citizen, and phase it in for people who become long-term residents over, say, a decade.
Bear in mind that this really does piss all over unskilled immigration. They’d really be competing with people doing low-skilled jobs as topups rather than household income generators. It’s a very good macroeconomic answer to the issue!
Using the same tack, wages are based on supply and demand/marginal productivity. How does everyone else get to magically demand further wage increases?
You guys may be internalizing the stories of big unions demanding and getting inflation-linked wage increases back in the 1960s leading to cost push inflation, back when unions covered a big section of the economy. That lead to cost-push because their wages automatically went up to track inflation, causing a feedback effect. No idea how that’s supposed to happen with the minimum wage.
Note also that in this minimum-wage inflation linkage model it’s impossible for the minimum wage to cause unemployment, which is the other claim usually made. Rather than establising a price floor below which the market can’t clear, thereby forcing low-skill labor out of the labor force, nominal wages automatically adjust up and down the chart to return real wages to the same levels as before the policy change. Right?
Alternatively, you may be assuming markets are the magical will of god, such that attempts to change them somehow are eaten and spit right back out leaving everything unchanged.
I actually think this! I have no idea how they work, the calculations that markets do are so complex I am amazed that they come even close to working. They are magic!
Assuming that wages are based upon people looking around (which is almost certainly how it works on the supply of labor side) it would happen exactly as you outlined. Minimum wage goes up, time lag, people look around and ‘demand’ more wages, time lag, (this part is questionable – note this is the marginal productivity part you are talking about, but honestly I don’t think that employers make that calculation – at least not in large companies, the only place I have experience watching the decision process, certainly finance does make an attempt at doing this calculation but it is a highly aggregated decision making process) get them, time lag, prices rise, time lag, people realize that the minimum wage isn’t ‘sufficient’ so they raise it, goto 10. It probably would be better to go back and read the theories of the minimum wage of people who are paid to think about this than positing some (certainly) half baked idea, since I’m simply posting it on a message board, but it seems plausible.
At the micro level, that’s how a lot of wage negotiations happen. Like a lot of things that don’t scale from micro to macro, however, at the macro level wages are more or less determined by marginal productivity and regulation. So it’s hard to come up with a theory of how it works.
I’m not sure that you can just wave your hands and say that those things which you can’t explain away just disappear because " macro".
I mean, do you seriously expect people who are making above minimum wage to just accept that now they make minimum wage? How do you rationalize that?
Here is an interesting column in the economist talking about the effects of minimum wage laws.
http://www.economist.com/blogs/freeexchange/2012/11/labour-markets
Rationalize what? Again, you’re extrapolating from the way bargaining works at the microeconomic level. It doesn’t apply to the economy as a whole.
I’m not sure that you can just wave your hands and say that those things which you can’t explain away just disappear because " macro".
Yes, it’s ridiculous to refer to a well-known body of knowledge and theory when I can just wildly extrapolate from things that “make sense” instead.