Many liberals, myself included, support a healthy minimum wage with enough purchasing power so that most people can buy the bare essentials on a full-time salary. A common way of maintaining this purchasing power is by tying the minimum wage to the prices of basic commodities — in short, adjusting it to inflation. But with consumer spending down across the board, the ever worrisome trend of deflation is leading Colorado to become the first state in the nation to lower its minimum wage. Public hearings are soon to follow.

Is it as bad as it seems, though? The law was meant to keep a balance between the purchasing power of the working poor and the ability of businesses to cope with the wage changes. If consumer prices are down, it’s because businesses can’t afford to charge normal prices and maintain their payroll. Forcing businesses to pay an artificially high (relative to recent deflation) minimum wage could end up meaning new layoffs. With the federal minimum wage ($7.25) as a safety net, states should feel free to tie wages to the consumer price index — regardless of the economic climate

Tags: inflation, minimum wage

This entry was posted on Tuesday, October 13th, 2009 at 11:34 pm and is filed under Current Events, Economics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.