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Standard theory suggests that price-inflation has a ‘regressive’ effect, in that it harms poor people, who consume a greater % of their income, more. Correct?
With that in mind, what sense does it make to root for price inflation so that you can raise nominal minimum wage?
“We’re gonna make everything more expensive for people like you – especially people like you – so that we can afford to raise your wages a little.” Huh?
To be fair, he does nod to this tension near the end of the post:
But real wages would fall for some people (I’m probably an example of such a person) and we might worry about the impact of that especially on the lowest-wage workers. Pairing expansionary monetary policy with a higher minimum wage to ensure that the interests of currently employed low wage workers are protected could make sense.
1. First, obviously, you can’t ‘ensure that the interests of currently employed low wage workers are protected’ all that well if they get fired – cease being currently employed – due to the increase in minimum wage you imposed on their employer.
2. At best, this is fixing a self-inflicted problem: ‘We need to raise minimum wage to ensure that you can still afford the prices that will rise due to the price inflation we’re spurring in order to be able to raise the minimum wage.’ Why enter this loop at all? Because we are minimum-wage fetishists?
3. At the very least, for people who still do, against all logic, favor a minimum wage, shouldn’t there be some consideration of real wages on the affected marginal category of people? Even if they succeed in their noble goal to raise those nominal wages (and miraculously, no jobs are lost in the process), how on earth is anyone even sure doing this round-trip helped rather than hurt the min. wage-earner’s real standard of living?
I clearly still have so much to learn about economics. Your help is appreciated.
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