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For example if the minimum wage is 10, and the inflation for the year is 3%, then next year the minimum wage is 10*1.03 =10.30. the next year, inflation is 5%, so the minimum wage becomes 10.82.

The idea is that this would be a method of ending the price-hike where the response to higher wages is to raise prices. Why? It is because raising prices directly raises the CPI, and thus the inflation rate. Companies shoot themselves in the foot if they hike their prices up.

What sort of problems arise when this is the case?

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    $\begingroup$ "Companies shoot themselves in the foot if they hike their prices up." What do you mean? If all others raise prices, would you stick to the old price while paying the mandatory higher wages? $\endgroup$
    – Giskard
    Jan 20, 2020 at 16:55
  • $\begingroup$ @Giskard you exactly proved my point, the companies raised prices, and are paying higher wages. what other companies do in response isn't relevant to the meaning. $\endgroup$
    – tuskiomi
    Jan 20, 2020 at 22:26
  • $\begingroup$ Couldn't this result in runaway inflation? Let's assume that, hypothetically, the minimum wage is so high that it's impossible to actually pay and still make money. In year 1 businesses raise wages 3%, and raise prices 3% (typical inflation) and another 3% (initial minimum wage increase), causing 6% inflation. Next year they raise prices by 6% and wages by 6%. The year after that, another 6%. Does anyone actually win? $\endgroup$
    – user253751
    Jan 21, 2020 at 15:36
  • $\begingroup$ @user253751 seems like you're asking the same question I'm asking. $\endgroup$
    – tuskiomi
    Jan 21, 2020 at 15:42

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