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Started By
Message
Minimum Wage drives Inflation
Posted on 2/4/21 at 8:16 pm
Posted on 2/4/21 at 8:16 pm
Over the last couple of days an old friend and I have been going back and forth on FB about the need for an increase in the Minimum Wage. I know, I know... "get off Facebook" blah, blah... I have reasons for being on it but that's not the issue right now. Read on.
I, of course, am against increasing the Minimum Wage due to wanting the market to determine the value of labor (with some caveats). He, however, is biiiiiig on government being the friend to all and Leveler Of The Playing Field.
The conversation eventually went into the Minimum Wage and whether or not it's a driver of Inflation. Of course it is, but his stance is that it's not because somehow all the wage earners spending their money is keeping costs down because spending... hunh?? It got to the point where I was tired of explaining the same thing a third different way only to be met with stuff he was just copying and pasting from websites.
If I wanted to debate a website I'ld drive to Bethesda and stand outside DU's HQ with a MAGA hat and an AMERICA FIRST sign.
So in a final attempt at actual discourse I dusted off the old Excel, pulled up some data and did some crunching and composing. I share this in case any others here who might find this data worthwhile for future discussions.
(I've highlighted the important stuff)
In case any need/want to double-check me:
Inflation data
Minimum Wage by Year (sort of) data
I, of course, am against increasing the Minimum Wage due to wanting the market to determine the value of labor (with some caveats). He, however, is biiiiiig on government being the friend to all and Leveler Of The Playing Field.
The conversation eventually went into the Minimum Wage and whether or not it's a driver of Inflation. Of course it is, but his stance is that it's not because somehow all the wage earners spending their money is keeping costs down because spending... hunh?? It got to the point where I was tired of explaining the same thing a third different way only to be met with stuff he was just copying and pasting from websites.
If I wanted to debate a website I'ld drive to Bethesda and stand outside DU's HQ with a MAGA hat and an AMERICA FIRST sign.
So in a final attempt at actual discourse I dusted off the old Excel, pulled up some data and did some crunching and composing. I share this in case any others here who might find this data worthwhile for future discussions.
(I've highlighted the important stuff)
quote:
It's one thing to reference articles which quote research done by others which say this or that but it's quite another to test your ideas by researching it yourself so that's what I decided to do this evening.
Pulling the Inflation data for each year from 1938 through 2020 and comparing that to the minimum wage for each year I found that the years the minimum wage increased either preceded or happened during an inflationary period more often than not. To put it into perspective, the average rate of inflation for the entire time period is 3.56471% (rounding up).
The average rate of inflation for the years when there was a hike in the minimum wage was 5.63636%.
Because Congress can never seem to agree on when a good time to implement things should be (sometimes it was implemented January 1, sometimes late October) I did another calculation of the minimum wage year plus the following year to make things a little more even for those years of late implementation. For those combined years the average rate of inflation was 5.154545%.
Just to be certain of what I was seeing I decided to see what the average inflation rate would be of the minimum wage increase year plus the next two years, that comes out to 4.003226%.
My next calculation was to get the average inflation rate for the years where the minimum wage was not increased, that comes out to 2.958333%. Look at that! That's nearly almost HALF the inflation rate of the years when there is a minimum wage increase!
As mentioned above I then took out the year following the minimum wage increase so we could rule out late implementation impacts, that brought the average down to 2.68163%.
After that I removed the two years of non wage increases following a minimum wage increase and that brought the average annual inflation down to 2.492308%.
As a side not, keep in mind that the nominal inflation rate is 2%.
This shows that, on average, when there is an increase in the minimum wage there is an increase in the average level of inflation and then the further we move in time from that increase in the minimum wage, the lower that rate of inflation goes. This isn't a correlation debate when your factors line up so perfectly, that's causation.
So yes, I can say (and just proved) that minimum wage increases are indeed a driver for inflation.
In case any need/want to double-check me:
Inflation data
Minimum Wage by Year (sort of) data
5
Posted on 2/4/21 at 8:19 pm to Bard
Minimum wage is a balance between providing more buying power for everyone who works, and keeping inflation at a healthy level
It's pretty inarguable that they're two sides of the same coin
It's pretty inarguable that they're two sides of the same coin
Posted on 2/4/21 at 8:30 pm to Walnut
quote:
Minimum wage is a balance between providing more buying power for everyone who works, and keeping inflation at a healthy level
Hazlitt wept.
Posted on 2/4/21 at 8:38 pm to Flats
quote:
Hazlitt wept.
You're going to appeal to the authority of a dead literary critic when your previous post is one word?
Political Talk posters have some weird hang-ups.
Posted on 2/4/21 at 8:40 pm to Walnut
quote:
It's pretty inarguable that they're two sides of the same coin
What is wrong with the market setting the value of labor?
Posted on 2/4/21 at 8:43 pm to Ace Midnight
quote:
What is wrong with the market setting the value of labor?
It depends a lot on how efficient the market is
If a market is inefficient then some light regulation can help get it back to where it needs to be so that the market can set price. The end-goal of regulation is usually to get to that point. A lot of left leaning policies tend to lean too hard into regulation, however, and go more for the "market shouldn't set the value" camp
Posted on 2/4/21 at 8:45 pm to Bard
If liberals cared about what low income Americans made at work, they'd outlaw shipping jobs to China.
But, they don't. They know that local employers that can't outsource to China will just fire or not hire people, and the large companies will offshore more jobs.
But, they don't. They know that local employers that can't outsource to China will just fire or not hire people, and the large companies will offshore more jobs.
Posted on 2/4/21 at 8:45 pm to Walnut
quote:
It depends a lot on how efficient the market is
What makes you think a minimum wage is ever more efficient?
Posted on 2/4/21 at 8:49 pm to GoCrazyAuburn
quote:
What makes you think a minimum wage is ever more efficient?
If you got paid $0.25 an hour to work at the grocery store (this would never happen but it's just an extreme example) and then you couldn't afford to feed yourself as a consequence, you become reliant on government handouts to live and sustain yourself. Let's say then that you're eating at a soup kitchen, that money isn't flowing back into the economy.
If the employer would just pay you $7.25 to begin with, you would never have this problem.
I am actually kind of shocked that almost 100% of this board is fully against having any kind of minimum wage at all, I took you all for mostly MAGA types and not so much staunch libertarians.
Posted on 2/4/21 at 8:51 pm to Walnut
quote:
If you got paid $0.25 an hour to work at the grocery store (this would never happen but it's just an extreme example) and then you couldn't afford to feed yourself as a consequence, you become reliant on government handouts to live and sustain yourself. Let's say then that you're eating at a soup kitchen, that money isn't flowing back into the economy.
Where does that money go? You flushing your weekly allowance down the toilet, aren't you.... admit it.
It's amazing how stupid some posters are.
This post was edited on 2/4/21 at 8:52 pm
Posted on 2/4/21 at 8:53 pm to Walnut
quote:
It depends a lot on how efficient the market is
If a market is inefficient then some light regulation
$15 fricking dollars across the country is not "some light regulation"
Jesus fricking Christ
Posted on 2/4/21 at 8:53 pm to Walnut
quote:
I am actually kind of shocked that almost 100% of this board is fully against having any kind of minimum wage at all, I took you all for mostly MAGA types and not so much staunch libertarians.
Are you more shocked that the Left supports essentially unlimited illegal immigration into the country, which does far more economic harm to unskilled American labor than a $15 minimum wage will do good?
Posted on 2/4/21 at 8:54 pm to Walnut
quote:
I am actually kind of shocked that almost 100% of this board is fully against having any kind of minimum wage at all, I took you all for mostly MAGA types and not so much staunch libertarians.
Jesus Christ you just took a massive logical leap from me asking why you think a minimum wage is more efficient.
And you didn’t answer my question. Your point was that if the market is not efficient enough, then a minimum wage is the answer to correct that. However, it is an impossibility for the minimum wage to be more efficient than the market, so therefore your solution to fix an inefficiency is to use an even less efficient answer?
Posted on 2/4/21 at 8:55 pm to Bard
Almost nobody makes minimum wage right now. And of the small fraction that do, most are kids.
Minimum wage kills those jobs.
People using emotional arguments for minimum wage, because they never took a high school economics class should refrain from voting ever again.
Minimum wage kills those jobs.
People using emotional arguments for minimum wage, because they never took a high school economics class should refrain from voting ever again.
Posted on 2/4/21 at 8:57 pm to gthog61
quote:
$15 fricking dollars across the country is not "some light regulation"
I'm not for $15 an hour minimum wage
I am for having an elastically appropriate minimum wage
I'll give you a hint, $15 is too high. That should have been obvious from the very first post if you all hadn't immediately jumped to "he must be a LIBERAL!!!"
Posted on 2/4/21 at 9:08 pm to Walnut
quote:
It depends a lot on how efficient the market is
If a market is inefficient then some light regulation can help get it back to where it needs to be so that the market can set price. The end-goal of regulation is usually to get to that point. A lot of left leaning policies tend to lean too hard into regulation, however, and go more for the "market shouldn't set the value" camp
Which type of markets are we talking about? Competitive or imperfect competition? Tradeable or non-tradeable goods and services? Localized or nationalized markets? Highly elastic or inelastic markets? But saying a market is inefficient and the need to regulate it to get back to efficient levels means you’re moving away from imperfectly competitive markets to competitive ones and in those markets the minimum wage is generally a bad idea.
Posted on 2/4/21 at 9:09 pm to BiteMe2020
quote:
Where does that money go? You flushing your weekly allowance down the toilet, aren't you.... admit it.
It's amazing how stupid some posters are.
Where do you think it goes? If it's stagnant and it's going to the employer, but it never gets paid back out or reinvested, then it just sits there. You could make the argument that companies are investing that money instead of paying it out, but then at some point you crash the consumer side of the economy (because if employees aren't getting paid enough to spend, companies eventually lose their revenue source) and it crashes the whole thing later on.
quote:
Jesus Christ you just took a massive logical leap from me asking why you think a minimum wage is more efficient.
And you didn’t answer my question. Your point was that if the market is not efficient enough, then a minimum wage is the answer to correct that. However, it is an impossibility for the minimum wage to be more efficient than the market, so therefore your solution to fix an inefficiency is to use an even less efficient answer?
I answered your question just fine. Markets aren't perfectly efficient. In an efficient market price and value are always perfectly correlated. I can't think of a single job where that is widely considered to be the case. Hell, you probably at one point in your life have complained about how the McDonald's cashier is overpaid. That's an inefficient market.
Where minimum wage helps that is if it's used conservatively enough, it keeps deadweight losses like my $0.25 example from ever happening.
Plus, most people would agree that in an ideal society, large swaths of people shouldn't be working 80 hours a week and unable to feed themselves. That isn't the society we live in, but we also have minimum wage that is rarely ever hit to help tune the markets.
Posted on 2/4/21 at 9:13 pm to Walnut
quote:
Let's say then that you're eating at a soup kitchen, that money isn't flowing back into the economy.
So, Americans were eating at soup kitchens for the first 150 years of its existence?
How did we ever build the world's greatest economy?
This post was edited on 2/4/21 at 9:13 pm
Posted on 2/4/21 at 9:16 pm to Ace Midnight
quote:
So, Americans were eating at soup kitchens for the first 150 years of its existence?
Most Americans aren't farmers anymore
Posted on 2/4/21 at 9:16 pm to Walnut
quote:
You're going to appeal to the authority of a dead literary critic when your previous post is one word?
I could appeal to basic economic principles but you apparently wouldn't get it. Your post is wrong on so many levels it's absurd.
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