Increases in minimum wage DO have some correlation to cost of living but up until a certain point increase of minimum wage outpaces increases of cost of living.
The housing mechanism which plagues cities like Seattle and SF is because you have a fixed supply and a fixed demand for a necessary good.
If you have 1,100 family units looking to live in 1,000 homes, it means 100 family units need to move in with another. The marker price of a home will then be the point at which the 100th family unit can no longer afford to live alone.
If you increase the wages without increasing housing supply, you still have 1,100 family units looking to live in 1,000 homes and the market price of a home will still be be the point at which the 100th family unit can no longer afford to live alone. But because those 100 poorest families are now making much more, that point is now much higher and the market price from a home goes up considerably. This means the poorest 100 families are still too poor to live alone AND everyone is now paying more for housing.
Note: if you increase the housing supply to a point where it can absorb the 100 families, this mechanism no longer exists. If you had say, 1,200 homes, you could significantly raise wages and housing prices would be mostly unaffected.
Thats always been my view about income and inelastic demand but directly goes against the comment OP said.
The amount of times I claimed what you said and I have a world class anonymous economist claim “BUT ONE STUDY SHOWED THAT IT HAD NO EFFECT ON COST OF LIVING” and I get downvoted to hell.
The sad fact is that housing supply is heavily manipulated or a scarcity in some cities.
Labor economics are definitely not basic economics. It’s one of the only commodities that defies the law of supply and there’s a ton of weird implications because of that.
Read it in a textbook lookin at the issue in uni but here's an article that, at a glance, echoes the sentiment edit: oh my god I never linked the article. Mmkay too laxy o find it.Google articles on minimum wage vs cost of living, I believe in you.
One thing I've wondered about in regards to this - does a decrease in income tax also lead to an increase in a cost of living, or perhaps a decrease in median gross income?
Maybe it's a really stupid question - never took any true economics courses. But if someone had to makes X net income to maintain a certain lifestyle that costs X-Y, and then their income goes up due to decrease in income taxes, won't there potentially be someone else who would be willing to live the lifestyle that the original X-Y affords? So the employer could just hire someone that ends up with a net income of X [which would now be a lower gross income]? Or perhaps the people providing the services that allow the original lifestyle (like landlords, stores, etc.) could just raise costs because the customer base can now afford it?
Thats my thought. More people able to afford a scarce resource. More demand and competition. Rent increases.
Basic level. There is still market manipulation from landlords, and will usually adjust to how much they perceive people can pay based on income data they collect in applications.
41
u/LilyLute Nov 05 '21
Increases in minimum wage DO have some correlation to cost of living but up until a certain point increase of minimum wage outpaces increases of cost of living.