By André Faust (11/11/2018)
In our system of economics, the minimum wage is functional in controlling for inflation and for that reason, the minimum wage will always create a class working poor and create a loss of buying power in the higher wage earners.
What happens when the minimum is raised inflation goes up? As inflation goes up the bank of Canada increases the lending rate to control the rate of inflation. The consequence is that all the industries in the system raise their prices to offset the increase of wages and interest rates.
In essence, what we have is an endless loop which each time it cycles there is a loss of buying power.
How much one makes really isn’t a good measure of prosperity. A better measure is the buying power of wages earned. As buying power diminishes workers have to work more hours to pay for goods and services.
There was a time that a worker working for the minimum wage of 75 cents or less per hour had greater power buying power than today’s worker, who in New Brunswick makes 11.25 per hour. The loss of buying power effects every wage earner, the 20.00$ per hour wage earner wage doesn’t increase yet everything else increases so his/her wages gets closer to the minimum rate.
The result of the loss of buying power is that the supply and demand are also affected. Wage earners are buying less so the demand drops, and with a drop in demand, supply decreases as well. When supply decreases the frequency of layoff also increases resulting in less money to spend. This process will continue until the entire system fails.
Our economics is a system consisting of nodes, and whatever happens in one node affects all the other nodes of the system. An example nodes are the banking institution, industry, the wage earners, investors, the stock markets, human displacement technology and so on.
Our present system of economics is not sustainable and as a result, it will eventually collapse. To avoid the eventual collapse, we have to have the social and political will to change the system. In other words, we need to have the sociological imagination to resolve the wage issue as it relates to the consumer price index. The likelihood of such a change ever happening is possible, but highly improbable. The most likely reason why changes are highly unlikely is that they are too many stakeholders working for their own interest.
In summary, not including the price of fuel minimum wage contributes to inflation and a loss of buying power for the higher wage earners. While there are other factors which contribute to rising inflation such as willfully creating a shortage to boost prices the increase in the cost of production precipitated by increased wages is the dominant factor for the increase in inflation. Our system of economics is made of nodes, and each node can affect the whole system because whatever happens in one node cascades throughout the entire system. Lastly, each business is self-centered it only looks after its own interest and doesn’t acknowledge that it is part of a system.
The cycle of inflation is always greater than the cycle of deflation and if this process is allowed to continue the likelihood of catastrophic economic failure is possible.