Why can't the minimum wage be tied to inflation?

[Feanorcurufinwe]

The obvious problem with minimum wage laws, at least if you are a minimum wage worker, is that they are, well, so minimal. When enough time goes by, we Democrats manage to get an increase passed, usually against stiff Republican opposition that folds just before the next election.

Well I'm not economist, so I'm asking - would tying the minumum wage to inflation somehow just end up being a built-in engine of inflation? would that necessarily be bad? Is this a bad idea or is it just something we wouldn't be able to get passed?

[SharonAnn]

1. Because the Low Wage conservatives won't let it be tied to it.

And they have the votes.

There's also the marriage penalty income tax which is not solved by Bush's tax cuts which also give additional benefits to families who don't suffer from it.

Here's the deal, two professional people who earn $50,000 a year get married and they wil pay a higher income tax than they would if they were single. And with full-time jobs they work approximately 4,000 hrs a year outside the home. And, if they have children, they have high expenses because of day care and other household issues.

Another couple, one person who earns $100,000 and the other who doesn't work outside the home, pay less tax than the high-income person would pay if he/she were single. With one wage-earner, they work approximately 2,000 hours a year outside the home. The other person can devote his/her time to child care, household maintenance, miscellaneous chores, etc.

Bush thinks the second couple needs a tax break!

[Feanorcurufinwe]

3. So it's all political?

I mean obviously it would be even harder to pass than a regular increase. But what I am asking is, apart from the politics, like lets say we had a solid lock on the House and Senate, would it be a good idea? It seems like it would be a built-in stimulus to inflation.

[deadeye]

2. I remember my first job in 1975 stocking shelves

I was paid min wage which was $2.10/hr. It would be interesting to calculate what the min wage would be now if were tied to inflation starting back then. I would bet it would be a lot more than I am making now ($26/hr).
Most blue collar jobs' pay hasnt kept up with inflation over the last 20 years or so. Unless EVERYONE's pay is adjusted for inflation, it wouldnt work, pretty soon everyone would be making min wage! Some just working harder for it.

[stevebreeze]

4. the $2.10 in 1975 translates into $7.23 in toadys dollars

according to the BLS's inflation claculator.
:kick:

[EconomicsDude]

5. Well actually...

...most empirical studies indicate that the minimum wage tends to increase unemployment. Typically minimum wage jobs are entry level positions, and building up a work history can be important for getting better jobs down the road.

Raising the minimum wage is not a costless method of reducing poverty and income inequality.

[Catfish]

6. True

and generally the minimum wage has been below the equilibrium wage for most labor markets. In some ways, it's more symbolic than effective. Also, raising the minimum wage could be, in itself, inflationary. Inflation rises -> minimum wage up -> inflation rises... We could end up seeing a classic wage/price spiral.

In order to see average wages (more important in my opinion than minimum wage) rise, I'd like to see economic policies that encourage productivity gains that can translate into higher earnings for workers.

[jhfenton]

7. "the minimum wage tends to increase unemployment"

"Raising the minimum wage is not a costless method of reducing poverty and income inequality."

Very well said.

[Catfish]

8. Yes

As with any price floor or ceiling, there are winners and losers and unintended consequences.

[TrogL]

9. Because it would cause a positive feedback loop

Also, if inflation actually dropped (eg. a drastic drop in oil prices, or a technological leap like really cheap computers) there isn't a chance in hell anybody would agree to a auotmaic drop in wages.

[wetbandit2003]

10. raising the minimum wage would cause a surplus in the labor market.

one thing that was always beaten into my head in my labor econ class is the fact that when you raise the minimum wage, would cause businesses to adjust accordingly to the increase of wages payable to employees in the negative sense. They will cut hours worked by employees or cut back in payrolls. which means that employees will get laid off, and people looking for jobs will have a hard time getting hired because of the cut back in payrolls or labor hours worked, causing a surplus....Companies will adust to the raises in minimum wage caused by inflationary adjustments.. Remember, the goal of the firm is to maximise profits......and companies will always adjust to the FISHER Effect of inflation.

[Lefty48197]

11. Some of these replies must be jokes

Everytime we Democrats suggest increasing the minimum wage, every right wing idiot in the land screeches that it will "cost jobs". (they said the same thing about Bill Clinton's economic plan, BTW)
Out of the other side of their mouths, they'll tell us that there are so few minimum wage earners, that the increase won't help the economy anyway.

Here's where the logic of right wingers falls apart: Since they claim that increases in minimum wages create unemployment, then the converse would surely be true. That is, if the minimum wage goes DOWN, then hiring will increase. The truth is, that the minimum wage has been dropping for over 30 years. The minimum wage of 1969 was about $10 in today's dollars, or about twice of what it is today.
That means that business that pay their employees the minimum wage have seen their payrolls DROP for over 30 years. Have they gone out and hired extra workers? No. They've put that money in their pockets and laughed all the way to the bank.

The claim about minimum wage increases causing unemployment is just plain silly. Can you imagine a bunch of people lined up at McDonalds waiting to buy hamburgers, but being told that they can't be served, because McDonald's can't afford to pay the employee an extra 25 cents per hour? I mean, how ridiculous is that?

[stevebreeze]

12. Of course raising the minimum wage could reduce jobs if....

you went to the extreme. The real fact of the matter is modest raises in the minimum wage show NO increase in unemployment. This makes a lot of sense if you realize that the on-site labor cost of a burger is really very small. If you were to lift wages to 150% of current wages you would see an increased cost of a couple of pennies.

[Catfish]

13. It depends on the labor market

If the minimum wage is below or very close to the prevailing wage in a given labor market, it will not affect employment levels in that market. However, if it is above the prevailing wage it will cause businesses to hire fewer workers. For many businesses in the service industry, labor is either the largest expense or close to it. For my employer (service based), labor cost is the 2nd largest cost. It's not only the wage, it's the costs tied to it such as worker's compensation, unemployment insurance, and the employer's portion of SS. The total wage bill is much higher than just the wages paid to employees. Some estimates put it at approximately 1.33% of wages (or 1/3 higher than just the wages paid).

I'm not a Conservative but I think it doesn't do workers any good to ignore the possible employment effects of the minimum wage. These are more likely in labor markets such as where I live, a rural area with few jobs and low prevailing wages.

[Code_Name_D]

17. About that labor...

For many businesses in the service industry, labor is either the largest expense or close to it.

Of course for service sector, labor is the largest expendeture becase there are vary few other line items to compeate with it. Service sector is all ABOUT the labor, or wouldn't be a servioce sector job.

[wetbandit2003]

14. Well

One of my teachers in college was a hard core democrat, who is the biggest Clinton fan in history said that the minimum wage increase would be detrimental for business.....Remember, that if Mc Burger did not adjust their labor by the factor of required wage increases, then they will reflect it in the price of their products. People do respond to price changes in fast food because fast food is very price elastic and there are substitutes for fast food. When business dies down,,,,so does investments in that business if its incorperated, and if its a small business, then the business owner will probobly have to close down,,,or lay off labor, if their product is elastic in price.

Just some "food for thought"....
BTW Im Pretty lefty myself over the labor MKT

[Catfish]

15. I agree

and it's the small business in markets that face demand that is price elastic that often must make difficult decisions regarding hiring even just 1 more person or possibly reducing hours for existing employees when faced with increasing labor costs. Every business owner/manager is not a heartless Republican tycoon type.

[DBoon]

16. I used to work at a McBurger

and the argument among us wage slaves was that McBurger customers tended to be teenagers (ourselves) who worked minimum wage jobs. Increase the minimum wage, more McBurgers sold.

BTW, this place actually had a monthly "welfare rush", when the welfare checks went out, families would go out for a small treat. Sad...