"A bill to raise California's minimum wage to $7.75 an hour over the next two years is headed to Gov. Arnold Schwarzenegger, providing a major test of his pledge to reject bills that "harm the state's business climate."
Is it going to drive businesses out of California to near by states? Will national businesses keep prices the same in California, but raise them slightly elsewhere? Will national businesses raise prices in California and leave them the same else where? Could a change like that increase inflation?
unfortunately, we will never have the chance to find out because Schwarzenegger terminated that bill.
update: parallel posting
From what I can deduce, if you raise minimum wage locally these things happen.
- poor people will get paid more (for the same job).
- Productivity could rise (but what are the incentives for it to rise).
- the people who got the raise will spend it locally, but will also be paying more also, though the gains will outweigh the losses (I think, though if it were a national thing I don't think it gains would out weight the losses).
- prices will rise for local businesses, because they absorb the cost locally.
- prices could rise for national businesses, but will be smaller than what the local businesses have to do because they spread the cost nationally.
- raising the min wage will change the way a business does business. It could increase productivity, or it could make it cheaper to out source to another state. Those in favor concentrate on the good points, those against concentrate on the bad points. Neither is right. Only the market decides what the outcome will be. You can predict all day long, but you will seldom be right.
- Money will flow in to a area with a high min wage and stay there longer, possibly generating growth. Though it could just get caught up in the high wage cycle of the area and not be released for growth.
I think the two things about economics were forgotten along the way: incentives matter and there is no free lunch.
"And lastly--productivity worth less than minimum wage?!?!"
This could infact happen. If you raised min wage to grocery stores, it could become cheaper to hire one tech savvy person to manage several automated checking machines. Will this happen on a massive scale? I have no idea, but it will happen to some people. Will that be the net affect? I have no idea.
"I thought "adjusted for inflation" does take into the increase in buying power for necessary goods. Inflation adjustment is based on an index measuring the cost of basic goods like food, housing and transportation."
Actually, I thought inflation was set by the base interest rate. See when you save money and receive interest, and create money out of then air. The sum effect is your dollar is worth less.
For example, ten men on an island with eleven men all get 10 dollars. The poor guy is the bank and pays 10 percent interest. All put their money in the bank. At the end of one year the all have eleven dollars (the banker creates the money out of thin air, or invests it overseas what every you prefer). So one dollar is less of the total amount of money in circulation after one year, with compound interest the effect could be great.
I have not looked up the definition, but I have a feeling that both things play a part. Though ask yourself the question: Why do prices rise, and I think you will come around to this definition of inflation. :)
Just thought that I would bring that up.
So far I am against the min wage, mainly because the government is doing it. Every single statement predicting the next step in the money trail, also has a contrasting next step. So I end up not being against the min wage for economic reasons, but morefor philosophical ones..