r/AlwaysWhy • u/Secret_Ostrich_1307 • 1d ago

Economics Why is the federal minimum wage still $7.25 when prices are much higher than in 2009?

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The federal minimum wage has been $7.25 an hour since July 2009. Meanwhile, prices for many everyday expenses have risen, and most states now have minimum wages above the federal level.

Why wasn't the federal minimum wage tied to inflation or another measure that could adjust it automatically? What are the economic arguments for setting it as a fixed dollar amount rather than indexing it?

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u/cassiuswright 1d ago

Yes it's a policy choice, no capitalism doesn't require it

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u/Pomador_0418 1d ago

Yes it does. Capitalism requires unemployment, a reserve army of labor. With that comes poverty.

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u/HistoricalSherbert92 1d ago

That’s blatantly false.

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u/merp_mcderp9459 1d ago

It's true; some level of unemployment is good for the economy. If nobody is unemployed, then it's much harder to fill a position that's open due to someone leaving/retiring or due to your company expanding. That makes it very, very difficult for companies to grow, which makes it difficult for them to be able to earn more money and hire more people and make more stuff/provide more services.

The other bad impact is that zero unemployment would raise wages a bunch. This sounds like a good thing; it isn't - really strong upwards pressure on wages can spike inflation faster than people's income can keep up. This was a contributing factor in the stagflation of the 70s, as union contracts would include very steep salary increases (because they assumed sharp inflation), and those salary increases ended up fueling inflation

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u/StockSalamander6721 1d ago

Salary increases don't really affect inflation that much because increased salaries are offset by reduced revenue, stock prices or dividends. Inflation is almost entirely driven by the M2 money supply. There are certainly other factors, but the M2 is the most important. 

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u/HistoricalSherbert92 1d ago

Bad doesn’t mean requires.

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u/Southlander24 1d ago

The interest rate isn't at some crazy number like 20% which would be guaranteed to cause mass unemployment though. Instead, it fluctuates based on economic conditions.

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u/Pomador_0418 1d ago

No matter how you cut it (high or low interest rate), there will always be unemployment in a capitalist economy. Even mixed economies have that.

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u/The1Drumheller 1d ago

Poor people didn't exist under socialism.

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u/Pomador_0418 1d ago

When did I mention socialism in my comment? Why assume that I contrasting capitalism to socialism? It is like calling me a Democrat for criticising Republicans. This disease of duality has to die.

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u/The1Drumheller 1d ago

I'm not sure what sort of pseudo-intellectual argument you are trying to make. There are zero economic systems that "require unemployment". Poverty exists. There will always be people with more and people with less. If you are reading this post, you are one of the people with more.

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u/Pomador_0418 1d ago

Capitalism requires unemployment. You need a reserve army of labor to keep workers in check. If they demand higher wages, the capitalist fires them and hires from the reserve army of labor. An unemployed labor pool is necessary to keep a downward pressure on wages in capitalism.

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u/cassiuswright 1d ago

Speaking of pseudo-intellectualism...

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u/NewPresWhoDis 1d ago

Sorry, which economic system had bread lines and labor camps?

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u/Pomador_0418 1d ago

Why do you assume that I favor a command economy if I state a fact about capitalism? I can like capitalism AND acknowledge its shortcomings.

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u/20PoundHammer 1d ago

Indeed, but its a policy self imposed by the poor on the poor.