Would raising the minimum wage across the country raise prices?

Asking because in your Global Capitalism Update, you claim that if companies have to hire Americans, they will have to pay them more than illegal immigrants, therefore causing prices to rice. Would doubling the national minimum wage have the same effect? Thank you.

Official response from submitted

I hope that I did not make such a blanket statement. Let me explain. When wages go up for any reason (rising legal minimum wage or shortage of available labor or anything else) the first impact is upon employers' profits. Less of the revenue they get from selling goods produced by the wage workers is left for profits after paying them the higher wages. Typically, employers are not passive in the face of such upward wage pressures. They look for and take steps to offset, as much as possible, the higher costs of their waged employees. There are alternative ways of doing that. They could, perhaps, find cheaper material inputs (tools, equipment, raw materials, etc.) and use the savings from buying those to restore their profits. Or they could relocate production to places where wages never rose or or cheaper. Or they could try to raise the prices of what they sell. But whether or not they do the latter depends on what happens to the quantity of products they can sell if they raise product prices. If they sell fewer, that will prevent them from raising prices to offset higher wages. My point in the radio show was only to point out that if US employers had to switch from Mexicans (because they were forced out of the US) to higher-waged US citizens, they might then raise prices. Trump and his supporters never explain to the US audience that an inflationary risk [not a certainty, but a real risk] attaches to Trump's anti-immigrant policies.

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  • Richard Wolff
    responded with submitted 2017-02-11 10:42:24 -0500
  • Zach Campbell
    published this page in Ask Prof. Wolff 2017-02-10 23:30:00 -0500