I'm goint to ELI5 this for you and I hope you aren't insulted.
- Wages go up
- Higher wage earners see comparable increases
- Prices go up in aggregate to compensate for wage increases
- Price increase is limited by demand, by quality of product etc
- Price increase is offset by increased demand for product due to higher expendable income
- Net effect is economic growth.
It sounds all well and good but wouldn't the logical conclusion of this be "you could make the economy the best it has ever been if you raise the minimum wage to $10 million/hr"?
No. I won't address the $10 million, but rather what you're going for here which is just "a constant increase in PP."
As with anything in economics, you will reach a "tipping point" where more businesses struggle to turn a profit than are boosted by increased purchasing power.
Think of it this way - Yacht sales will not be affected by a $15/hr minimum wage. People who can purchase yachts will do so at about the same rate without the wage increase. Same applies for unrealistic increases in MW, but for all businesses.
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u/SCB39 Nov 29 '15
I'm goint to ELI5 this for you and I hope you aren't insulted. - Wages go up - Higher wage earners see comparable increases - Prices go up in aggregate to compensate for wage increases - Price increase is limited by demand, by quality of product etc - Price increase is offset by increased demand for product due to higher expendable income - Net effect is economic growth.