All posts by Colin Narver

unidad de formento and minimum wage

Interested in the implications of digitizing one of the alternative currencies – unidad de formento in particular (inflation-indexed unit of account used to set prices) and how it could impact the minimum wage.

I’m from Seattle and have been inspired by the battle over raising the city’s minimum wage to $15. The town around the airport (Sea-Tac) just established this working wage and the conversation continues as to whether Seattle will follow suit..

NYT article Robert Shiller, Nobel economist, sees potential in electronic currency in terms of its ability to solve the problem of volatility.

http://www.nytimes.com/2014/03/02/business/in-search-of-a-stable-electronic-currency.html?ref=business&_r=2&_ga=1.138571251.1567067268.1395893332

In the US, minimum wage is not inflation-adjusted, leading to fights over how much to raise it each time inflation makes the old one obsolete.

Shiller sees part of our monetary paralysis is in our inability to index prices. He takes inspiration from Chile, which implemented the unidad de fomento (UF), which is an inflation-indexed unit of account used to set prices.

The exchange rate between the UF and the Chilean peso is now (today) constantly adjusted to inflation so that the value of the Unidad de Fomento remains constant on a daily basis during low inflation.

http://en.wikipedia.org/wiki/Unidad_de_Fomento

Right now currency’s “value” is affected by speculators, inflation, deflation and other stuff unrelated to the value of whatever you’re buying. UF strips out those variables to just see what things cost in terms of their actual value.

If wage were instead based on value of goods, there would potentially be less need to constantly reestablish the minimum wage.