One big risk here, or with any cyclically referenced benchmark, is runaway positive feedback. This can be exponential growth, oscillation, or exponentially growing oscillation.
If wages are referenced to CoL, but CoL is affected by wages, you have this risk.
A real example I have encountered: years ago, before an area I was living in experienced hyper demand, rent prices were fairly stable. I was able to get decent places just under $1k. My landlord was pretty chill, but said that they had to raise the rent eventually because they couldn't write off expenses (or maybe it was losses) if they were charging below the area median rent. So every year, landlords would have to increase the rent to the median, which would almost certainly raise the median (unless literally the bottom 50% of prices were exactly the same), and then they have to raise again, etc.
Again, this is just excuse.
You can’t fix a lack of housing issue by keeping wages low.
Secondly, we’re talking about minimum wage, not all wages.
It's math. If f(x)=K * g(x-1), and g(x)=L * f(x-1), you need to be very careful about choosing values for K and L.
There's actual empirical research on minimum wage, and it doesn't support these claims of exponential cost increase: https://noahpinion.substack.com/p/why-15-minimum-wage-is-pre...
If you legally define the minimum wage as a formula instead of an absolute number, and that formula includes cost of living, you can create a runaway situation.
I don’t see why a simple adjustment for inflation or cost of living is bad and risky a priori but allowing it to decline over time is a priori good and not risky.
There is substantial bias in that assumption.
Have we ever witnessed an exponentially growing oscillation in a large scale economic feedback loop like this before? I'd never really considered that concept for macroeconomics.
Maybe the boom/bust business cycle, coupled with inflation, is exactly this phenomenon? Maybe social media frenzy is also a feedback phenomenon.
I also have a lot of family who currently live just fine making less than $15/hr. Their employers (small businesses) would have to raise prices (or go out of business, or both), which would raise costs, which would raise the CoL index, which would raise future minimum wages in a feedback cycle, if there is not some compensating factor in how wages and prices are set.
If the market would bear it and they could increase prices profitably, why wouldn’t they just do it today, regardless of wages?
The federal minimum wage in 1960 was $1.00 [1].
Adjusted for inflation, $1.00 in 1960 is equivalent to $8.86 in 2021 [2].
[1] https://www.cnn.com/interactive/2019/business/us-minimum-wag...
[2] https://www.dollartimes.com/inflation/items/1960-united-stat...
But what’s odd about your argument is that the federal minimum wage ought to be $12-13/hour if it had simply been adjusted for inflation since the late 1960s. So by that measure, we value “unskilled” labor even LESS than we did half a century ago.
If we had adjusted minimum wage for productivity growth, it’d be about $21/hour right now.
So I think we ought to have a nationwide federal minimum wage minimum of $12.50-15/hour, adjust it for inflation continually, but also adjust for local cost of living so that the nationwide average (average of regions) minimum wage is around $21/hour, continually adjusted each year for cost of living.
And I am not worried about automation increasing unemployment over the long term. We should have targeted efforts to increase employment rate if there are periods of disemployment from disruptive automation, but we have more jobs now than we did a century or two ago in spite of two centuries of increased automation and mechanization.