Do higher wages lead to higher prices?

One of the arguments of the bosses and their representatives is that an increase in the minimum wage will cause prices to increase – that we’ll be paying $15 for a MacDonald’s hamburger if they have to pay their workers $15 per hour. As the photo above shows, that’s not true. But it also helps to know why it’s not true.

Karl Marx debated that exact question almost 150 years ago. He explained, in short, that if workers get a pay increase and the bosses try to raise prices to make up for it, then demand for the items that workers usually buy will drop relative to the demand for luxury items. As demand for worker-bought items (ground chuck, etc.) decreases (relative to luxury items – yachts, filet mignon, etc.), they will then be forced to drop those prices. As for the luxury items, there will be no increased demand for them, so price increases will not be able to hold.

It’s well worth reading Marx’s argument in full, as he explains it in “Value, Price and Profit”, since he also explains what value is, how prices are determined, etc.