Thinking in Circles about things I don’t understand (economics)

Yesterday, I wondered aloud on Twitter:

Wondering: why isn’t minimum wage tied to inflation so it predictably auto-adjusts yr-to-yr? How would that affect the economy?

I had a great follow-up conversation with @Brishen, who is of course, brilliant on all these sorts of things. I’m pasting below the fairly-disjointed circular logic thinking that had lead to this (this is a slightly edited version of what I asked him), and stemmed from that thought, in case anyone has any insight, or better yet, suggested reading for me (besides an Econ 101 textbook):

Min. Wage should auto adjust up over time based on “costs of living”, which I short-handed to inflation. But then I thought maybe there should be localized cost-of-living variance (which, there sort of is, diff. min wages across provinces). B/C rising costs aren’t as dangerous to small business as unpredicted changes. But that might cause flight out of urban areas to suburbs for small business? Or maybe there’ll be a slight hiccup and verything will keep on rolling – b/c it just becomes costs of doing business, which somehow, no matter how high, seem to just become part of the fabric.

if I know Min wage will adjust by 1.5% every year, then that just becomes math

And increased min wage should increase buying power at the lower end of the income spectrum which seems good.

But then I thought. Increased min wage = higher costs for business = higher prices of goods for customers = higher cost of living = higher min wage and then into an ever-increasing death-spiral of inflation.

So maybe we should abolish the min. wage altogether, but I don’t believe that’s actually a viable option. Human self-interest prevents the “market” from establishing a “fair” working wage I think.
And is a flat tax system fairer than a “progressive” tax system like we have?

For some reason, I’ve been spending a lot of time thinking about these large issues that I have no education to help me understand, and I distrust the sources I have readily available to me.

2 Replies to “Thinking in Circles about things I don’t understand (economics)”

  1. Increasing the minimum wage also has a depressive effect on the economy – given that most companies in the country are small businesses, and small businesses often employ minimum-wage workers. Small business have trouble swallowing minimum wage increases and that affects our competitiveness.

    Something else is that aren't most people who are earning min. wage teenagers? If we're going to base the wage on inflation, then we should use a reference basket-of-goods that reflects essential needs of teenagers. At least, min. wage jobs seems to be usually for young adults or people just entering the work force.

    I don't think abolishing it is an option. Min. wage workers are the most at-risk group for employer abuse and have little to bargain with.

  2. Trained economists have successfully predicted 12 of the last 3 recessions.

    I don't think you need to worry about your lack of formal economic training before expressing an opinion.

    The bigger economic problem facing Canada is a shortage of skilled workers and a job shortage for unskilled work. Correcting this discrepency would supersede any negative economic effects of raising minimum wage.

    Also keep in mind that people on minimum wage tend to live paycheck to paycheck, therefore 100% of any minimum wage increase will go straight back into the economy boosting business. At worst this would distort the economy by favoring businesses that sell staple items, at the expense of high end luxury items.

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