Every economy has consensual and coercive aspects. For example, interest rates are set to some extent in a coercive manner, as are minimum wages enforced by law. So heres the question for debate...would eliminating the minimum wage create deflation in the OVERALL economy? A very large recent study on adjacent US States has determined that higher minimum wages do NOT create more unemployment, but they do create higher prices. Question is: do these higher prices extent beyond those goods and services minimum wage jobs produce??? Would lower wages in unskilled labour drag highly skilled wages down?
America's low wage workers are not such a large part of American prices that reducing or increasing their wages by 20% will have much impact on inflation or deflation. America's higher wage workers are in a completely separate labor market from America's lower wage workers. America's higher wage workers might be hurt slightly by low wage workers reducing their already small consumption of high wage services but the high wage workers might benefit some from lower prices for low wage worker's services and from increased spending by the employers of low wage workers from their increased profits created by paying their low wage workers less. Some people badly wanted to see higher minimum wages in neighboring states create unemployment to validate their theories while others badly wanted to not see the unemployment to validate their theories. The later group got lucky when the evidence largely backed them up. When I heard about those studies the higher prices were not mentioned. Either my sources omitted mention of higher prices because they were biased or the people who are against minimum wages added in the higher price bit. I don't trust conservatives because in my experience they lie so much, so be alert to possible deceitful distortion in any claim of minimum wage causing significant price increases. I don't actually need the studies to know that at least to some insignificant degree having minimum wage or a higher minimum wage has to cause some loss of employment in the industry having minimum wage imposed upon them. This loss of employment might be more than offset by the employment created when the minimum wage earners spend more money. Cheaper wages in China leads jobs to leave the USA and go to China. Cheaper wages in Mississippi lead to Jobs leaving Michigan and going to Mississippi. I also don't actually need the studies to know that at least to some insignificant degree having minimum wage or a higher minimum wage probably would lead to some price increases in the products of the industry having minimum wage imposed upon them. On the other hand businesses try to price their products and services correctly based on market share and profit margin and can't necessarily just raise prices because costs went up. They would raise prices regardless of whether their costs go up or down if they could raise prices without losing business to their competition or losing business because their customers no longer want so much of their product at a higher price. If higher production costs does not reduce the competition for market share then the producer will have to keep his cost to the customer level and simply earn a smaller profit. If the restaurants pay their dishwashers more they might compensate by raising customer prices or they might reduce profit or they may use a lower quality cheese or if they were already losing money and using crappy cheese and charging customers as much as they were willing to pay then they might go out of business. Their decision will be based on what works best for them. I suspect that lower profits is probably the most common answer which is why the business owners hate minimum wage. Paying tomato pickers more because of the Taco Bell boycott barely effected the price of tomatoes to Taco Bell and Taco Bell's customers because the cost of tomato picking never was so large of a component of the price of tomatoes. Raising the price of Chinese and emerging market labor via a falling dollar or whatever won't have as large an Impact on the price of goods sold at Walmart as people might expect because the labor cost of manufacturing is not so large of a component of the price of Walmart products. America's low wage workers are not such a large part of American prices that reducing or increasing their wages by 20% will have much impact on inflation or deflation. Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties http://www.escholarship.org/uc/item/86w5m90m.pdf;origin=repeccitec http://www.thestar.com/article/175445 http://www.ombwatch.org/budgetblog?page=433,3 http://en.wikipedia.org/wiki/Minimum_wage http://ashleymac.econ.vt.edu/ashley/2006sum2000/DandSstuff/minwage.htm
I found an interview with one of the researchers on this study: http://www.youtube.com/user/TheRealNews#p/u/7/8MtwgGqJAyY One of the questions not raised is whether dropping the minimum wage altogether and nationwide would eventually bring back some of the production based jobs that left for Mexico/China over the past decade. And to what degree this would lower the overall cost of living in the US. It would be interesting to find out what percentage of prices goes for *domestic* labour at stores like Walmart, Costco, Fast Food chains, etc. Thanks for your comments.
The real minimum wage in the US has been dropping for thirty years. It was originally set, back in the '60s and before, at the level that would support a family of four on one forty hour @ week job, at poverty level. That would be 22k @yr now, or about $11@hr without discounting for higher payroll taxes. About $13@hr, if the latterly imposed higher tax burdens on the poor are figured in. Any benefits from lowering the minimum wage would be visible in today's economy, compared with the economy of 1965 - 70.
This info is very dated but it supports the view that Chinese imports could be heavily tariffed without much change in the price or market share...at least for 2004. http://www.businessweek.com/magazine/content/04_50/b3912051_mz011.htm
Actually Carcano's chart there suggests that it's been roughly holding steady since 1990 ($6/hour +- $1 per hour). And the recent spike is pretty interesting - seems that we're back to parity with the mid 1980's right now.
The Fed changed the way inflation was calculated. Read between the lines here: http://en.wikipedia.org/wiki/United_States_Consumer_Price_Index Phone service became cheaper in dollars for example, in the CPI calculation, due to the competitive breakup of AT&T and the advent of cell phones that call long distance at no extra charge - increasing the value of the minimum wage. Whereas in reality a minimum useful and maintained phone - what the minimum wage person needs to get and hold a job - is more expensive, and the minimum wage is worth less toward providing phone service. They make "hedonic" and elasticity adjustments, so that if (say) you have to pay three times as much for a car, but they all come with air bags and a better radio, the CPI does not reflect a tripling of the cost of car purchases (the extra value is discounted) and if you switch from high priced meat to cheaper meat, your CPI does not rise to reflect the rising cost of the preferred meat. The new calculations simply omit most housing (it's an "investment") and much medical care. Dozens of little adjustments like that. They make a certain sense if dealing with upper level incomes, but they mislead badly at the lower end. The better approach is to figure in one's own experience and common observation.
