<p>For example if the minimum wage is 10, and the inflation for the year is 3%, then next year the minimum wage is 10*1.03 =10.30. the next year, inflation is 5%, so the minimum wage becomes 10.82.</p>

<p>The idea is that this would be a method of ending the price-hike  where the response to higher wages is to raise prices. Why? It is because raising prices directly raises the CPI, and thus the inflation rate. Companies shoot themselves in the foot if they hike their prices up. </p>

<p>What sort of problems arise when this is the case?</p>

CC BY-SA 4.0
2020-01-20T16:55:56.783Z
"Companies shoot themselves in the foot if they hike their prices up." What do you mean? If all others raise prices, would you stick to the old price while paying the mandatory higher wages?
Giskard
CC BY-SA 4.0
2020-01-20T22:26:53.737Z
@Giskard you exactly proved my point, the companies raised prices, and are paying higher wages. what other companies do in response isn't relevant to the meaning.
tuskiomi
CC BY-SA 4.0
2020-01-21T15:36:40.937Z
Couldn't this result in runaway inflation? Let's *assume* that, hypothetically, the minimum wage is so high that it's impossible to actually pay and still make money. In year 1 businesses raise wages 3%, and raise prices 3% (typical inflation) and another 3% (initial minimum wage increase), causing 6% inflation. Next year they raise prices by 6% and wages by 6%. The year after that, another 6%. Does anyone actually win?
Criticize SE actions means ban
CC BY-SA 4.0
2020-01-21T15:42:40.713Z
@user253751 seems like you're asking the same question I'm asking.
tuskiomi
<inflation><minimum-wage><real-analysis>
What problems arise when the minimum wage is directly linked to the inflation rate?
tuskiomi
# What problems arise when the minimum wage is directly linked to the inflation rate?

(Asked by: username_0 on 2020-01-20)

For example if the minimum wage is 10, and the inflation for the year is 3%, then next year the minimum wage is 10\*1.03 =10.30. the next year, inflation is 5%, so the minimum wage becomes 10.82.

The idea is that this would be a method of ending the price-hike where the response to higher wages is to raise prices. Why? It is because raising prices directly raises the CPI, and thus the inflation rate. Companies shoot themselves in the foot if they hike their prices up.

What sort of problems arise when this is the case?

**Tags:** inflation, minimum-wage, real-analysis

> **Comments:**
> **username_1**: "Companies shoot themselves in the foot if they hike their prices up." What do you mean? If all others raise prices, would you stick to the old price while paying the mandatory higher wages?  
> **username_0**: @username_1 you exactly proved my point, the companies raised prices, and are paying higher wages. what other companies do in response isn't relevant to the meaning.  
> **username_2**: Couldn't this result in runaway inflation? Let's *assume* that, hypothetically, the minimum wage is so high that it's impossible to actually pay and still make money. In year 1 businesses raise wages 3%, and raise prices 3% (typical inflation) and another 3% (initial minimum wage increase), causing 6% inflation. Next year they raise prices by 6% and wages by 6%. The year after that, another 6%. Does anyone actually win?  
> **username_0**: @user253751 seems like you're asking the same question I'm asking.  

---

## 0 answers

