Does raising minimum wage cause inflation?

[JaggedEdge]

We raise minimum wage in order for people to afford to live, but does raising minimum wage actually encourage inflation? I have yet to come up with a definitive answer to this question.

When cost of living increases, people need to make more in order to adjust, but at the same time, when the wages goes up, the cost of living tends to go up with it. Do landlords and the like raise prices because the consumer can afford to pay them again.

Basically, we seem to increase minimum wages in states, only to have the cost of living go up to a point where nothing has changed.

Instead of making $6.10 an hour or $200 a week and paying $400 for a shitty apartment, people used to make $0.60 an hour or $24 a week and paid $16 in rent for the same shitty apartment.

Those numbers aren't researched, so don't try hard to disprove them. I'm inebriated and simply trying to start a conversation. If you have actual historical costs, please feel free to post them. The numbers sound close to right though, and that's enough for me at this point.

The point is, does raising minimum wage actually accomplish anything other than causing even more inflation?

If we stopped raising the minimum wage, would inflation stop increasing at the rate it currently is. Obviously there are other factors that cause inflation, like our national debt and the printing of money we can't back, but would things work out if we stopped raising minimum wage or would there simply be rampant homelessness?

Also, in the 80's and before that, middle class families (for the most part) could afford to send kids to college, provide them housing, and give them allowances. Now most can't, we are required to work while being full-time students and the average 4 year degree is taking 5-6 years to complete.

For example, after hurricane Katrina, when everyone around here got there $2,000 to $4,000 from FEMA, the price of the apartment we were living in rose from $550 a month to $770 in just a few months.

That was simply a short-term influx of money, so isn't it logical the same happens when minimum wage increases?

Is it logical you could reverse inflation if you lowered minimum wage?

JaggedEdge Reviewed by JaggedEdge on 03-27-2009. Does raising minimum wage cause inflation? We raise minimum wage in order for people to afford to live, but does raising minimum wage actually encourage inflation? I have yet to come up with a definitive answer to this question. When cost of living increases, people need to make more in order to adjust, but at the same time, when the wages goes up, the cost of living tends to go up with it. Do landlords and the like raise prices because the consumer can afford to pay them again. Basically, we seem to increase minimum wages in Rating: 5

[Stemis516]

theoretically and empirically the answer is yes for the most part....while the money supply itself still plays a large role in inflation as well as what people do with the extra money when they get it...there is some evidence that saving it as opposed to spending it could hedge inflation...i wish i still had my old labor econ book with the graphs to prove it, perhaps ill go look it up tomorrow

and while i dont know if you could reverse it exactly, you could certainly put downward pressure on inflation by lowering the minimum wage

thats the thing, i know you are a fan of the free markets and the minimum wage if actually a market inefficiency because theoretically there are people that would be willing to work for a lower wage but the law doesnt permit it, and therefore the firm loses out

the thing ive noticed throughout my study of economics is that REAL growth (real as in actual growth without inflation) is very hard to define and determine what the many factors are

[jonquest]

raising the minimum wage does not cause inflation, at least not in the sense that i use the word. raising the minimum can raise prices though. if a company has 20 workers working at $5/hour and minimum wage is brought up to $5.50, some changes will have to be made. this is where the good nature of the minimum wage law goes wrong. how will the company compensate for this price control on labor? one option is to raise the price of their product and keep all their workers. another is to fire 2 workers, keep the price of their product at the same level, and lower production. in other words, minimum wage laws kill production.

[Stemis516]

raising the minimum wage does not cause inflation, at least not in the sense that i use the word. raising the minimum can raise prices though. if a company has 20 workers working at $5/hour and minimum wage is brought up to $5.50, some changes will have to be made. this is where the good nature of the minimum wage law goes wrong. how will the company compensate for this price control on labor? one option is to raise the price of their product and keep all their workers. another is to fire 2 workers, keep the price of their product at the same level, and lower production. in other words, minimum wage laws kill production.

in the way that i understand it, thats how they measure inflation...by looking at price levels

[Mississippi Steve]

Its real simple... employers have a certain profit margin they have to maintain to keep their doors open and have a little left to re-invest in their business/company to replace worn out and outdated equipment, etc.

Employers are in business to make a profit.

When the minimum wage is raised, the employer has 3 choices.... charge more for their products/services, or lay off people, or close their doors.

[jonquest]

in the way that i understand it, thats how they measure inflation...by looking at price levels

higher prices are the result of inflation. inflation is an increase in the money supply. this is the view from the austrian school of economics.

Its real simple... employers have a certain profit margin they have to maintain to keep their doors open and have a little left to re-invest in their business/company to replace worn out and outdated equipment, etc.

Employers are in business to make a profit.

When the minimum wage is raised, the employer has 3 choices.... charge more for their products/services, or lay off people, or close their doors.

exactly. minimum wage is one of those things that sound nice to everyone, but really hurts everyone.

[JaggedEdge]

exactly. minimum wage is one of those things that sound nice to everyone, but really hurts everyone.

Ok, so if we agree minimum wage actually hurts in the long run, unions are a negative as well?

Workers need protection, but Unions force employers to give raises, same concept of minimum wage hikes. In particular in small towns with plants that are unionized.

[Mississippi Steve]

Ok, so if we agree minimum wage actually hurts in the long run, unions are a negative as well?

Workers need protection, but Unions force employers to give raises, same concept of minimum wage hikes. In particular in small towns with plants that are unionized.

Exactly.

[jonquest]

Ok, so if we agree minimum wage actually hurts in the long run, unions are a negative as well?

Workers need protection, but Unions force employers to give raises, same concept of minimum wage hikes. In particular in small towns with plants that are unionized.

no, unions are fine. unions can try and get raises, but if they demand wages too high, other workers who are willing to work for less will come in and take their place.

[GoldenBoy812]

There are a couple terms being synthesized loosely. While it is true that in the classical sense, inflation is an increase in the money supply, the end result does not always equate to increased prices. Price is a function of both supply and demand, therefore the slogan "to many dollars chasing too few goods" only implies if the demand for dollars decreases relative to the demand for that specific good.

Could more dollars in the system cause this to happen? Sure, but i highly doubt the lowest income earners increase in volume would be enough. Reason be, a firm's revenue might increase as the result of more disposable income from a demographic that has a steady % of their budget allowing the purchase of the specific firms good or service.

With this in mind, the real question is whether an increase in minimum wage reduces the instances of employment (jobs shifting overseas) as opposed to an increase in m2. If the decreased cost of production equals lower prices, equal to the lost revenues (short run) due to lost employment, than it is a positive outcome (long run).