| hershel_layton said: Bernie Sanders has a goal of making a $15 minimum wage, ranging from librarians to your McDonalds cashiers. I've been thinking about it a lot lately, but wouldn't that cause more harm than good? I'm not exactly the smartest in economics, so please bare with me. If we drastically increase the minimum wage, wouldn't that result into inflation, thus making the wage increase redundant and useless? Again, I'm not the most educated on American economics. I'm still learning about it, so don't be surprised if I have misunderstood this subject. |
It doesn't cause significant inflation, because it mostly increases the money available to the poor (because wealthy people generally aren't working minimum wage jobs). As a result, there ends up being more market activity.
The argument put forward for why increasing the minimum wage would increase inflation is that companies would need to put up their prices to cover the increased cost of employing people. But with more market activity, they get more sales, and thus more profit, without increasing their prices.
Mind you, a very sudden, significant jump in minimum wage would probably cause significant inflation in the short term, because the cost of employment goes up but the market hasn't had a chance to see the flow-on effects. That's why increases in minimum wage are usually staggered somewhat.
Even if there were increased inflation, it would increase much less than the increase in the minimum wage. This is because the underlying costs of products isn't changing - it's only the profit that needs to compensate, not the full price of the product.
