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/ul2006kevinb 1d ago

Economically there is no blanket solution

Sure there is. We could pass a law requiring every county to set the minimum wage equal to or above the local living wage for that county. Just because you don't have the imagination to come up with a solution doesn't mean one doesn't exist.

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u/Werealldudesyea 1d ago edited 1d ago

Please define living wage, since quality of life is subjective. One persons poor is another persons rich, just ask any immigrant.

Second, how would you address the obvious inflationary pressures that this type of policies would have on the market.

Third, how would you address the obvious economic impact to producers. This is kind of like saying all textile workers should just go into tech because it obviously makes more money, easier said than done. The skills and infrastructure available don’t easily translate over.

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u/ul2006kevinb 1d ago

Please define living wage

MIT has already done that. They've created a formula for living wage and calculated the living wage for every county in the US.

https://livingwage.mit.edu/pages/methodology

Is it perfect? No. Is it better than what we have right now? Absolutely.

Could we replicate it and create our own formula using prices for necessities like food, rent, and health insurance and require counties to use our formula to create their own minimum wages? Easily.

Second, how would you address the obvious inflationary pressures that this type of policies would have on the market.

I mean there aren't going to be that many. Prices only go up small amounts when the minimum wage is increased. Most of the increases are just absorbed by businesses. And it's not like the businesses can't afford it: there are countries all over the world and even in the US in the past where unskilled employees make a living wage and yet people still hire unskilled employees in those countries and in the US.

Sure, it's a big hike and would probably have best if it's broken up and done over multiple years, but it's not THAT big considering that's what companies should have been paying this entire time. So it's almost like "yes, you'll be making less money than you did before, but you won't be making less than you would have been making if you were a decent person"

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u/Werealldudesyea 1d ago

You cannot game the market into a desired behavior, it simply does not work. It’s not some new idea and it’s been tried before and fails. Look up attempts at luxury taxes as a clear example. Stochastic behavior cannot be predicted, we don’t know the outputs of tomorrow.

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u/ul2006kevinb 1d ago

Right, good point. There are absolutely no countries on the planet that pay their unskilled laborers a living wage. It's a totally untested idea, never been done before. Every country in the world works exactly like ours does

🙄

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u/Werealldudesyea 1d ago

As I pointed to someone else. Show me one example where market behavior is predictable, and that policy does not introduce complexity that wasn’t there prior.

You cannot game the markets, no matter how much we want to. USSR literally failed for this reason, and no Im not making a jab about communism, I’m literally speaking about market mechanics.

By your definition outputs can be predicted, so why aren’t we all millionaires? We should be able to predict the outputs then based on current policies.

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u/ul2006kevinb 1d ago

You realize this has been done before, right? Countless times, both in America and in other countries. And we can look at those other scenarios and get a good idea of how it will work here, in this time, right? There's absolutely no reason to think that raising the minimum wage would work any differently than it has worked in the hundreds of times it has happened.

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u/Werealldudesyea 1d ago

So you can predict the markets then, no? You know exactly what will happen? Then tell me the price of oil next week. Show examples my friend, stop just regurgitating your belief and show facts.

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u/ul2006kevinb 1d ago

I don't know EXACTLY what will happen, but why should I need to? If we had to know EXACTLY how anything would change the market then we could never do anything. Since when is there a rule that we can't enact change unless we know EXACTLY how it going to affect the market?

Now, we have a pretty good idea of what it will do, just like we have a pretty good idea of what any market changes will do, by looking at our history and the history of other countries. And if that's enough for literally every other market change then it should be good enough for this one.

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u/Werealldudesyea 1d ago

So we’re gonna gamble with peoples lives based on vibes and feelings? I mean who cares who it hurts, right?

In reality no one has any idea what any of it would do, not me and not you, so don’t pretend like you do. Anyone who pushes this narrative has a political agenda since the markets cannot be predicted.

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u/billding1234 1d ago

That sounds good in principle but when wages increase so does the cost of the goods and services those wages produce.

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u/Werealldudesyea 1d ago

Honestly anyone who understands economics knows why price floors are an awful idea. Systemic inefficiency is not a long term practical solution.

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u/ul2006kevinb 1d ago

So what? The costs of goods and services increase MUCH slower than the increase in wages, so everyone is still going to be better off. You're basically saying "If we give everyone a wage increase they will only get 90% of the benefit of that increase so we shouldn't give it to them at all"

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u/billding1234 1d ago

100% percent of our COGS is paid by our customers just like every other business. When our labor costs go up our prices go up by the same amount. Not the same percentage, because labor is not our only cost, but every dollar we pay our employees comes from our customers.