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DY
Youre right about that last point,
CA
You seem to have youre own theory of economics that isnt based on supply and demand.
My last point didnt prove anything, but thats becasue of DY’s reason not yours
Thanks.
I actually think CA did make a good point, and it is demand related. If society has been trained to accept a higher price, there will be a higher demand at that price than had they not been.
There shouldn’t be a minimum wage. There should be a maximum wage. That way employers would be forced to hire more people if they wanted to get more stuff done, and it would create more jobs. And salaries would be benchmarked to the maximum wage.
CA
See my first line here
For example
Lawrence Mishel, president of the Economic Policy Institute believes it benefits the economy as a whole
Raising the minimum wage hurts everyone(employer, employee and economy). The employer will hire less or even fire some employees if he can’t afford to pay them more and then that affects the economy because you have less working people to buy stuff. People who are looking for long time growth and good jobs aren’t planning on staying in minimum jobs for a while. They want to move onto better jobs.
Ca
exactly, as I have been saying throughout. Economics is not as simple as you laid out in your OP. all I have been doing is answering the question you opened with.
Kfb
see this thread:
CA
If it was as simple as that economists wouldnt debate the point.
most agree that a certain minumum wage is needed. The question becomes what if anything should it be tied to. So the answer to your question is it allowed the little people to survive I guess that can be called “helped”
Of course others disagree.
CA
“Sure” Of course not! It is impossible to be sure.
Lets back up.
whether raising the minumam wage is good or bad for the ecnomy, or for the lower class for that matter has been debated for decades. Leading economists are torn on the issue. I am not claiming to have the definite answer
In your OP you asked a question “I don’t understand the rationale behind raising the minimum wage, doesn’t that make things more expensive?”
I explained why your assumptions were an oversimplification. I am not saying raising the minum wage is necessarily a good idea. I was just explaing the other side, and pointing out why your assumptions in the OP were wrong even if yoru conclusion isnt necessarily wrong.
Incidently the forbes article you cite does not say what you said. You claim increasing the minimum wage would increase the price. This is not at all what Worstall says.
Ca
thanks, I read a different piece
CA
It isnt your hypothesis it is something leading economists have debated for decades.
Would it undermine your hypothesis if I started listing stores that did not raise their prices?
Ubiquitin, it probably would. It would depend on controlling for other factors. I’d like to hear.
Is higher cost generally leading to higher prices really debatable? What would be the theory behind it not?
DY
“It would depend on controlling for other factors.”
Exactly my point. Its not like Mcdonalds sits down (daily? Weekly?) and adds up the cost of a burger say meat + cheese + letuce + labor + marketing etc etc + profit = price of burger. There are other factors at play most importantly supply and demand which are not (directly) dependent on the cost of providing the burger
“Is higher cost generally leading to higher prices really debatable?”
Depends what you mean by “cost” it cost more for a supermarket to maintain a parking lot keeping it lit, shoveled etc than the store who doesnt have one. Yet that cost is easily offset by attracting more customers. It doesnt mean automatically mean that the prices at Supermarket A (with parking lot) are more expensive than Supermarket B (without).
I mean cost per item sold. Flat expenses should not factor in.
Of course it depends on supply and demand, but cost per item (which impacts profit per item sold) should definitely also factor in, and there’s almost no way for increased cost per item sold to not result in higher prices.
I am assuming that higher labor costs result in higher cost per item, because there is a limit to how much product one worker can produce (serve, etc.). This may not be true for every business but should be true for most.
I am assuming that higher labor costs result in higher cost per item, because there is a limit to how much product one worker can produce (serve, etc.). This may not be true for every business but should be true for most.
Until the high cost of labor causes the initial start-up cost of automation to look reasonable, and the long term costs of inputs go down.
DY
“Flat expenses should not factor in.”
why not?
CA
“It’s something that’s low demand, hence any change in the price would considerably change demand for the worst”
I’m not sure what you are talking about? Fast food is low demand???
Look, I readily admit (as before) that I dont have definite answers. This has been looked at multiple times with economists divided on the issue.
As far as increasing prices, there is somewhat less of a divide , that prices would increase (Though still without unanimity) However, with many arguing that it still is better for the economy.
See for example “The Effect of the Minimum Wage on Prices” by a Sara Lemos which provides arguments for both sides (though does conclude that “a small increase” would likely result.
My only point is that it is far from certain
Why should they? They may impact whether it’s worth it to be in business, but if the motive is profit, that is determined by profit per item x number of items sold – flat overhead. The number of items sold is heavily influenced by the price, and the profit per item is a product of price – cost per item, but flat overhead doesn’t influence the customer’s decision whether or not to make a purchase.
Gavra, I can grant the minimum wage increase proponents that we haven’t reached that point.
Also, ubiquitin, your answer to my question would not favor minimum wage increases.
A well lit parking lot will bring in more customers; higher labor costs for the same labor will not.
DY – but at $15 an hour…… I’ve seen plenty of automated soda dispensers (as an example), which didn’t exist 10 years ago. That may have lowered costs (or increased profit).
Or try this out for size. You go to Wal Mart, and have two options. Option 1 is to use the automated check-out counters. Option 2 is to use a person, but that entails a 20% surcharge.
There are many unpredictable possibilities of what might happen, and we won’t know until it does.
CA, I’m not discussing the social or political aspect, just how it affects prices.
I don’t think what I’m saying, that prices increase with higher labor costs, is really debatable. Whether the overall economy improves is more complex, and might very well be a subject of debate, and certainly, the social, moral, and political aspects aren’t so clear cut.
Gavra, it increases profit by lowering costs.
I understand that increased labor costs can incentivize automation, aside from cutting corners on other forms of customer service. I just don’t know how much, and the proponents can claim that the overall benefit to the workers outweighs the loss. They may even be right.
Gavra, it increases profit by lowering costs.
Sorry meant lowering consumer costs, not input costs. I should have specified.
As far as your second point, they may be right. They may not. The only way we will know is if it is done, and we see what happens.
CA
“How about quarterly? If there is a sharp decrease in profits… “
There MAY not be a sharp decrease in profits. IF the minimum wage workers now have more money thus buying more burgers the producer can make more
DY
“A well lit parking lot will bring in more customers; higher labor costs for the same labor will not”
Same as to CA. PArt of the argument is that with more disposable income the minimum-wage earners will be buying more.
It is clear that none (or almost none) of the posters on this thread has ever read an economist’s explanation of minimum wage. I have. There are several different points of view on the subject, but let me summarize them. And just to be clear, I am not an economist, but I play one on line.
Raising the price of something (oil, matzoh, unskilled labor) does not necessarily cause a decline in demand. And the price of goods and services are based on market forces, not only the cost of producing the goods and services.
Some economists who support a rise in the minimum wage believe – correctly, IMO – that the relative bargaining power and market information of unskilled, non-union workers is lower than their employers’ bargaining power and market knowledge, and that (i) the government has a moral obligation to help unskilled workers, and (ii) higher-paid laborers become bigger consumers, which stimulates the economy. Some workers may lose their jobs, but many of them will enjoy increased income. Whether this income comes from the employers’ profits or from an increase in revenue that the employers can impose on their customers varies from product to product and service to service and is, in part, a function of the gross profit of the product or service, and, of course, elasticity of demand (I’m too lazy to explain that one). So all you (or should I say, “us”) amateur economists ought to read some real economists to understand the issue.
Or you (and I) can just read the online blather that supports your (or my) unfounded personal beliefs.
CA
“That all depends …”
exactly! there are many variables. Thus when you asked in the op “while I don’t understand the rationale behind raising the minimum wage, doesn’t that make things more expensive? it’s basic economics” Isnt quite true, as there are many variables.
While most economists do believe as you indicated that it would raise prices, a) some disagree and b) even among those who agree that prices will go up, many still believe it is good for the economy
Ubiquitin, I’m not arguing good/bad for the overall economy. I’m saying prices will go up.
nfgo3 :
Raising the price of something (oil, matzoh, unskilled labor) does not necessarily cause a decline in demand.
Sure, but any economist will tell you that if there are substitutes (and the good is not a Giffen good), the demand for the substitutes will rise and less of the good will be purchased. There is a substitute for unskilled labor called automation.
A question being debated is how much the minimum wage can be increased before the “some” substitution becomes a flood, so “many” workers lose their jobs (think substitution of labor, China and the rust belt).
The counter-argument for the “moral obligation” is that the government should raise the EIC, not the minimum wage.
CA -“The democrat position is that businesses like being forced to distribute their wealth.”
Another reason why you can’t vote DemonCrat!
But the truth is – all this raising the minimum wage – will cause owners to hire more illegals, than they do already.
The DemonCrat party are bunch of hypocrites!
They aren’t serious in getting rid of the illegals.
With apologies, I have not the wherewithal to trawl through the above two pages of back-and-forth, and nor do I possess requisite knowledge of the relevant economic calculations to counter a truly informed dissent.
Therefore, I will take the coward’s way out (although also an honest one) by saying that there is far more nuance in this debate than is generally acknowledged above.
In instances, raising the minimum wage can raise the price of consumer goods, with the simple rationale that in order to fund their workers’ wages, they have to raise prices, which leaves everybody back at square one. This is entirely possible, and logical.
However, this would be the case in a perfect economy where everybody is employed and everybody is paid at a reasonable rate. Then the relatively simple logic outlined in the opening post takes effect. But if there is a sound case to make that the workforce is being exploited, then that logic falters somewhat.
This, for instance, would involve a case where the power lies in the hands of the employers, for example, if there are more qualified candidates available than needed. The employer can then, in a completely open, capitalist economy, offer far lower wages then are fair, and keep the change. This might affect the demand, but would be unlikely to lower it to the extent this margin disappears, because that capital is still in the economy, only concentrated in fewer hands. If this is the case, then the rationale for a fair minimum wage becomes far stronger. Of course, even in this case there will still be some negative effects, such as moderate price rises and a strain on some small businesses, and it would be for those making the judgement, hopefully utilising some economic expertise in the process, to evaluate the pros and cons, and adjudge if the measure would have a net positive effect on the economy. And sometimes it does, and sometimes it doesn’t, depending on the balance of that particular instance.
And in the case where it should be enacted, this is not forced wealth distribution. Forced wealth distribution is extortionate inheritance or property tax, or penalising wealth by taxing at unfair rate. This involves enacting a law that says that an hours work is worth a particular minimum amount, and paying less then that amount is simply extortion. People understand this in the case of monopolies and cartels, so why not in employment law?
Of course, this measure would only be just if the workforce is being exploited. If it is simply a crude wealth distribution measure, and not necessary to protect employees, then it is entirely unjustified. A similar argument can be made with regard to unions.
This may be far more long winded and less dramatic than most of what has been said, but it at least acknowledges that these issues are not as cut and dried as the OP and some others appear to think.
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