Minimum Wage: to infinity and beyond
Hello people! Did you hear that Switzerland voted today on a minimum wage that would (if passed) be of $4'500 per month!!! That's the approximate equivalent of S/. 12'500... per month... as a MINIMUM wage!
Hell let's all move to Switzerland, the wage of burger flippers would be higher than my own! The last information I got was that the minimum wage unfortunately did not pass after all. Can you guys think of an economic argument for asking such a high minimum wage? How can it make sense to ask such a crazy salary?
Note that it is not the nominal income that matters but the real one (which can also depend on the amount of taxes paid). If the level of prices is high enough, and it is very high in Switzerland, then having a higher minimum salary would make sense... up to a point.
One of the good things that can come out of that is the increase in consumption in reaction to this big increase in wages. In this case, it would probably be Co, or minimum living standard, that would increase significantly (AD shift to the right). As for the bad thing, a good amount of firms would fire people and unemployment would increase. That would be shown as a decrease in AS (due to higher costs of production). Unemployment would probably increase (but not certainly) and high levels of inflation will certainly increase substantially.