Why Is the Minimum Wage Not Adjusted for Inflation?
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Chapter 1: The Stagnation of Minimum Wage
In a striking revelation, I came across a chart on Wikipedia indicating that nearly 40% of states have not raised their minimum wage since 2012. As illustrated in the data below, the Consumer Price Index (CPI) has increased by 25% during this period, while housing costs have surged by 100%. In particular, housing prices in San Francisco have escalated by almost 200%, making it increasingly unaffordable for low-wage earners.
While some states, particularly California and New York—already among the highest in terms of living costs—have nearly doubled their minimum wage, the hourly wage of a little over $7 back in 2012 was inadequate even at that time. This amount translates to roughly $15,000 annually, while the poverty threshold for a two-person household hovers around $18,000, and for families with children, it rises to about $23,000.
With an inflation rate at 8%, those earning minimum wage will see their purchasing power erode significantly in just a few years unless substantial reforms are enacted.
Despite the notion that the minimum wage serves merely as a baseline, many individuals earn only this amount. With a defined minimum, businesses often align their wage offerings to this standard whenever feasible.
Section 1.1: The Business Perspective
Economic principles inherently lead companies to minimize labor costs, particularly for lower-skilled positions. The lower the operational costs, the more competitive a company can be in pricing its products while maintaining profit margins. This competitive advantage rewards shareholders and management, often at the expense of workers.
In a highly competitive landscape, businesses strive to reduce expenses, with labor being a significant component. Consequently, companies may resort to various strategies to cut labor costs, such as paying the minimum wage, reducing benefits, relocating to less expensive regions, outsourcing, or automating processes.
Subsection 1.1.1: The Impact of Minimum Wage Increases
Section 1.2: The Political Landscape
When confronted with potential minimum wage increases, companies often respond by raising prices and trimming their workforce. This dual threat of inflation and unemployment, coupled with substantial lobbying efforts, has historically deterred lawmakers at both state and federal levels from advancing wage hikes. Regrettably, profit margins take precedence in a capitalist system, allowing those with greater financial resources to dictate the rules.
Chapter 2: Insights from Experts
This video discusses the implications of raising the minimum wage and its influence on inflation, shedding light on the broader economic context.
Here, the video explores the reasons behind the stagnation of salaries in the U.S. and how they fail to keep pace with inflation, providing an essential perspective on the issue.