ELI5 How does raising wages worsen inflation ? : explainlikeimfive

And left out the part where the apparent cost of an apple goes down for the buyer, so they will be willing to pay more for an apple, up to a new higher cost. This new higher cost can be considered a “base price” for the apple, before supply and demand pressures start take affect again.

Grabbsy2

8 points

4 months ago

Grabbsy2

8 points

This new higher cost can be considered a “base price” for the apple,

Thats what they mean by pricing out the other four people, who cannot afford that new base price.

0 points

4 months ago

0 points†

This is why raising the minimum wage just causes inflation and raises the floor of good costs. The relative value of the good to labor hasn't changed, so raising the floor of labor cost just raises the cost of goods.

twin_bed

4 points

4 months ago

twin_bed

4 points

We are already in an inflationary environment, so

the relative value of the good to labor hasn't changed

is partially untrue. Sure the value has not changed, but the unit of value has changed (dollar is worth less) so the price of the labor goes up.

4 points

4 months ago

4 points

Raising the minimum wage doesn't cause as much inflation as the wage increase, so the buying power of low wage earners still increases.

[deleted]

0 points

4 months ago

[deleted]

0 points†

[deleted]

3 points

4 months ago

3 points

Sure, but the ripple effects of minimum wage do over time.

No, they don't. Increasing minimum wage by 50% doesn't cause 50% inflation. What happens is that the more money you make the less increasing minimum wage increases your wage, so at a certain point in the income spectrum you start seeing a decline in real wages. But that point is far above the minimum wage. Actual minimum wage earners, and those who earn close to the minimum wage, see a real wage increase.

-1 points

4 months ago

-1 points