Thursday, November 09, 2006

Is minimum wage indexed by inflation recursive?

In the recent election several states passed increases in minimum wage. What I found even more surprising that many of the new minimum wage rates are now index to inflation. This means every year minimum wage will increase the same percentage as official inflation. The thing about minimum wage increase is: drum roll, someone has to pay for it. Believe it or many businesses that employ people have tight supplies of money. So what options do business owners have to cover the increased costs of a forced wage hike? Layoff employees, slash hours, cut back on services, offer lower quality items, close their door, or increase prices.

So if business increase prices, then next year the minimum wage will go up again, then the cycle continues. It seams to me that our politicians and the popular vote for what seams best now, but don't think about the untended consequences. I really wish the government would let the market decide what labor wages should be.

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