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The Minimum Wage Spiral to Doom February 23, 2013

Posted by geoff in News.
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USA Today has a nice compilation of the proposals the President made during his State of the Union address. Among the 66 proposals, two are juxtaposed in a scary kind of way:

31. Raise minimum wage

“Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9 an hour.”

32. Tie minimum wage to inflation rate

“So here’s an idea that Governor Romney agreed on last year – let’s tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on.”

So lessee: raising the minimum wage is inflationary. Then you adjust it for inflation, then its inflationary, then you adjust it…

If you have to have a minimum wage, then I don’t think anyone objects to adjusting it for inflation. But if you’re going to adjust it twice (as the President proposes), you can run into serious problems. The real issue is how much initial adjustment you initially make. If it’s too much, the system can go unstable, with spiraling inflation (as well as increased unemployment, failed businesses, etc.).

Raising it by 25%?

That’s probably too much.

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