Well yes. If you don’t increase pay, prices will still go up due to other economic factors, increasing pay just tends to also increase prices. In fact when inflation is very high, increasing pay can lead to even greater inflation- a major cause of inflation is when supply can’t keep up with demand. When people have more money that tends to drive up demand- which tends to drive up inflation in most cases. So if you have lots of supply but still lots of demand- inflation. If you have demand but supplies are restricted- inflation. If you have ample supply and equal demand you can still get inflation because the demand for money can fall. For example- if you feel that what you have is not worth the market value or that you simply don’t have the prophet incentive for commerce- money isn’t worth it to you.
So let’s take an economy where people have plenty of money- everyone is able to pay for decent living and save 30% of their income comfortably. There would be plenty of surplus cash- you could easily buy almost anything you wanted- and if you have that surplus of money there isn’t much you’re buying right? So what would you do with more money? If I offered you ten thousand dollars and you have $250k in the bank and nothing to spend it on- what’s $10k? Is it worth it? Of course when people start to mass money- people tend to start buying things, and when lots of people have lots of money and start buying things- demand surges which can drive inflation, and surging demand can also tax supplies which drives inflation. With all that commerce people tend to spend money on dealing- buying to resell, amassing investments etc.
Raising interest rates can help deflate the economy because when loans are hard to get it helps cap prices. At .2% interest people with money will tend to buy houses and cars and large things because they have access to the money and at a low cost. At 30% people will generally avoid things they can’t buy with cash on hand. The value of money increases, the supply chain has less demand on it, inflation tends to decrease. If you act too aggressively or foolishly to combat inflation- you can cause a recession or depression. If mishandled that can cause a “death spiral” where lack of funds makes creating wealth and jobs and such difficult and it is hard to get out of that place.
So inflation will happen fairly independently of wages, but raising wages can and usually will lead to inflation. That isn’t to say that wages should not be raised ever- but it isn’t so simple as to say “let’s just raise wages and fix things!” We can look at places where the minimum wage is far above $7.25. In parts of California minimum hourly wage is above $20 an hour, and in most of the state it is $15+. Washington DC has a minimum wage over $16 hourly. Look at housing prices and other cost of living markers in those areas- despite raising minimum wage the costs in those markets are generally astronomically higher than most other markets.
If you’re a land lord and you know anyone trying to rent who has a full time job makes at least $20 an hour- aren’t you likely to charge accordingly?
You may not have a choice. In a competitive real wastage market there generally aren’t issues filling vacancies or selling homes. In a market like many major cities, a home costs 20+ years of 100% the annual average wage- and people buy at those prices which is what supports them. Lots of demand, limited supply that isn’t easily grown. Now let’s say minimum wage is $100k a year. Lots of people will qualify to buy a $500k home. In a market where homes are $200k on average- anyone can fairly easily buy a home. So people will. As the market is flooded holes begin to be bid on- you offer $200k and someone offers $250 and if someone REALLY wants the home they offer the maximum $500k they can get a loan for. When that home sells for $500k it signals the market to increase asking price which tends to increase bid price.
But here is the problem- all the people making $100k are bidding against people who make $250k or some who make more or have wealth and equity to leverage. Their max bid isn’t $500k- maybe it is $1 million. Homes then move above the price you can afford on minimum wage.
As less people can afford homes the demand for rentals increases and asides being homeless, if you have no one to live with- you have to rent if you can’t buy. Rents tend to go up. When houses sell for $400k or more over asking- if you paid $250 or $500 for the house and it’s almost a million now- many will sell because you can move and get a comprable house somewhere else and pocket the rest. But when you paid a million for a house- your mortgage is much higher and where applicable property tax and insurance are higher than a home for $250k- by a lot. So if you rent that property- you must charge a higher rent- and that rent must be charged for as long as you hold the mortgage unless you sell before then.
And if you are charging $4k a month for rent on a house, someone with a similar house in a similar location might be honest and principled but not terribly financially bright to charge much less since their nut is smaller. People usually don’t charge less if they can get more, and those that do usually run out of supply quickly because duh- if you can get the same thing for half or less the price then everyone looking will want that one right? And of a house is $4k then an apartment or condo etc. probably isn’t worth as much but can still command a premium- and if minimum wage is high then everyone knows that most anyone working full time can shoulder at least 30% of their income on housing.
Economics can be complex. Let’s keep it simple. Could you quit your job tomorrow and never work again and have enough money to pay your bills and do everything you want and be comfortable in financial crises or retirement? Do you only do your job because you enjoy it? Probably not. Why do you work? Because you need money. Now, if every job paid as much as the average CEO makes, and most people kept their same lifestyle- most people could work for maybe a decade or less and never work again. Retire in your 20’s in theory. If you had as much money as the “big boss” you probably wouldn’t work for them- they’d work for you if anything. If everyone is rich- no one is rich. That’s what makes most people go to work- their boss/company has more money than you and will trade you some of that money to work.
As long as someone wants more they will work to get more- if minimum wage is $250k a year or $50k a year do you think people making that much now would just be happy and ok to suddenly make as much as minimum wage? If working at Walmart pays as much as being a dentist why would people go hundreds of thousands in debt and spend all the time studying and deal with the stress and liabilities of the job when they could go do something else for the same? People with money are just always going to find a way to make more than you. If they didn’t they wouldn’t be people with money, they’d just be average people with the same cars and the same house and the same food and the same vacations as everyone else.
Now- of everyone could live in a mc mansion with 5 cars and live that sort of life- that might be fine. But…. That’s not happening in the conceivable future. How much beach front property is there in south east Florida or Southern California or the Texas gulf etc? How many 100 acre ranches with fertile land and beautiful vistas and scenic mountains can exist in Montana? Not as many as there are people who want to have that life. There are only so many 2 bedroom homes with a medium yard and so forth. The people who want those things are still going to try and have them. Unless we convert to some sort of lottery or turns based system or something where instead of how much you’ll pay we allocate things people want on random number tickets or something.
The system doesn’t support it. It is really simple- if prices aren’t fixed or indexed, or if some sort of basic level needs are provided and the rest is “upgrades,” you can raise wages all you want but the market will just respond and things will tend to return to relatively the same point. There needs to be growth to support wages matching inflation and we are pushing the limits of resources in either or both terms of physical materials and/or what we can produce. You can’t have economies where most people produce no tangible value but everyone has access to tangible goods and prices stay indexed to cost of living- not under current economics.
Cost of living is a major issue but it goes beyond minimum wages. We need to look at the total picture and how it all fits together. Wealth disparity is in general larger and more prevalent than in modern history. Global demand is much higher as more and more nations have developed their standards of living. Service based economy has largely replaced production based labor forces in many major economies. Continuing increases to standards of living and minimum requirements for things like access to technology to function in society or meet environmental regulations further changes the picture from what it once was. So it’s a bigger issue and in general there isn’t strong evidence to support that a simple minimum earnings hike would have even a net positive impact on things.
If you’re a land lord and you know anyone trying to rent who has a full time job makes at least $20 an hour- aren’t you likely to charge accordingly?
As less people can afford homes the demand for rentals increases and asides being homeless, if you have no one to live with- you have to rent if you can’t buy. Rents tend to go up. When houses sell for $400k or more over asking- if you paid $250 or $500 for the house and it’s almost a million now- many will sell because you can move and get a comprable house somewhere else and pocket the rest. But when you paid a million for a house- your mortgage is much higher and where applicable property tax and insurance are higher than a home for $250k- by a lot. So if you rent that property- you must charge a higher rent- and that rent must be charged for as long as you hold the mortgage unless you sell before then.