Bind the Minimum Wage to the Consumer Price Index

This is an excerpt from a paper I wrote for a "government and politics" class. After sharing my ideas, I was encouraged to post this one online.

The minimum wage exists to prevent employers from exploiting their workers. However, as the minimum wage is increased, it decreases the demand for labor. Small businesses simply stop hiring unskilled workers when the wage required to hold an employee is above the value of the employee’s contributions. In this way, the minimum wage, when set too high, prevents small businesses from expanding and makes it difficult for unskilled workers to get any job at all. As with other price floor impositions, it creates surplus that few are willing to buy. Additionally, a minimum wage that grows too fast removes the financial incentive for those unskilled workers to become skilled, leading to a decline in overall productivity.


It is, on the other hand, reasonable and appropriate that the minimum wage be periodically increased to account for inflation. The Consumer Price Index measures changes in the value of the dollar by comparing the prices of certain goods in the present to their prices at a fixed point in the past. If the minimum wage is set to an agreed-upon dollar amount in the present and bound proportionally to the CPI, it will forever have that same value; the periodic debates on whether to increase it and by how much will be gone. The cost of living is different in different areas of the country, so it is reasonable that state and local governments should decide on the present dollar value that buys the goods needed to live in their areas, and then bind the growth of that amount to the CPI.