I am very confused by Obama’s speech on Federal Minimum Wages (FMW). Though I am not completely neutral to political ideologies, let us assume I am for the purpose of this discussion (hence I wont question whether minimum wages are required at all). I also do not have the expertise to say what is the correct value of FMW. Is $6 enough? Is $8 enough? Is $10? I do not know.
My confusion is simply due to one argument Obama made — he says by increasing FMW to $10.10, people will make more money and hence will have more money to spend and hence money will move and hence economy will benefit.
But if FMW were to increase, the price of goods made by people with higher wages will also increase. Will it not? If that is the case, people’s buying power will remain the same, even though their wages has increased in absolute terms. How is this beneficial to economy? Isn’t he effectively artificially causing inflation?
I also believe that by increasing FMW, he is making a number of people (who were earlier right on the borderline) pay income taxes. And secondly, the sales tax of the price-hiked goods will increase, and the revenue to the government will increase.
So was his FMW about improving quality of life of citizens or increase revenue for the debt-stricken nation?
Further reading — More harm than good?