Last night, Louisville City Council voted to increase the city’s minimum wage to $9/hour by 2017. Current federal minimum is $7.25/hour. The Guardian article, whether intentionally or by Freudian slip, mentions a peculiar detail about this legislation: after 2017, the wage will increase accordingly with inflation.
The wage will increase accordingly with inflation.
What we have here is the central problem that comes with minimum wage legislation that exists in a nation that also uses fractional-reserve banking and fiat money. In the United States, our money is not backed by anything, and hasn’t been for almost 100 years. The value of our dollar is determined more by how many other bills are in circulation rather than the actual number on the bill. Think of why gold has more value than soil – soil is more common than gold thus lowering its value. For X amount of dollars in the supply, the dollar has Y purchasing power. As the supply of dollars goes up, the value of each individual dollar goes down. This is why something that normally would have cost $5 in 1913 now would cost $119.27 in 2014 dollars. This is the inherent enemy of a minimum wage. It doesn’t matter how much you raise minimum wage. It will eventually be negated by inflation. This doesn’t invalidate the arguments of pricing lower skilled labor out of the market or increasing unemployment. If someone cannot produce $9/hour worth of labor, then they are unemployable until they find a different way to gain skills. This is a very real concept but also the most difficult to see. Unemployment numbers can be measured but also include other factors. However, inflation is very easy to see through history, and is especially noticeable after the 1933 Gold Seizure. The impoverished and lower working class of Louisville will enjoy a temporary band aid, but it won’t last forever. More thorough change, especially at the Federal Reserve level, is necessary.
Further Readings On Minimum Wage: