If you have to pay your workers more money then the prices of what you are selling have to go up to continue to break even on what you are selling, so raising the minimum wage wouldn't accomplish anything other than inflation, so why?
If you have to pay your workers more money then the prices of what you are selling have to go up to continue to break even on what you are selling, so raising the minimum wage wouldn't accomplish anything other than inflation, so why?
I'm not an economist but thinking through this I wouldn't expect the increases to be 1 for 1. For example maybe labor is 50% of McDonald's costs. So if the cost of labor goes up 20% then the price of food only goes up 10%. So now the minimum wage worker whose wage went up 20% has greater purchasing power at McDonald's.
But OK - what if that minimum wage increase ends up eventually increasing the cost of food & rent for McDonalds? Now everything has gone up 20%, right?
I would argue no. I think a minimum wage does end up impacting higher salaries, but again it's not 1 for 1. Let's say I make $100k. Minimum wage goes up 20%. That will not eventually translate to my salary increasing to $120k. Maybe it goes up a little but there are enough steps in between that the impact should dampen by the time it reaches me.
So maybe raising the minimum wage increases the cost of everything, but I'd argue there is some dampening that happens and so while the lowest wage people get the 20% increase, the price of everything and wages for higher earners does not necessarily go up by the same 20%. So those people effectively get a targeted boost.
That is my intuition but an economist can tell me if I'm wrong.
I think Ricardo's corn model addressed the distribution of income during the early 1800s.
If the poor remain poor, then who will buy the products?
The wealthy save a much higher percentage of their income (dividends) than the poor.
Therefore, welfare economics suggest that even if the minimum wage was the result of nearly perfectly competitive markets, the costs to society could be high because the wage was not sufficient for humane living conditions.
An application of Coase's Theorem would be when the private costs of actions (the wages paid by firms with more market power than the workers) are separate from the social costs of those actions (society must provide assistance), either the firms can be required to pay the difference (minimum wage) or the firms can be bribed into not abusing the workers (tax credits for workers salaries).
Marxism remains popular because of so many firms with greater market power than the workers.
If it remains low, demand in real terms for finished goods and services will decline, then firms will decline to borrow savings for the purchase of capital goods, and demand for finished goods and services will fall further. Hello Recession or Depression.
fdssss wrote:
I'm not an economist but thinking through this I wouldn't expect the increases to be 1 for 1. For example maybe labor is 50% of McDonald's costs. So if the cost of labor goes up 20% then the price of food only goes up 10%. So now the minimum wage worker whose wage went up 20% has greater purchasing power at McDonald's.
Except when you raise prices you lose sales. So you have to raise them MORE to compensate and still break even. And then you lose even more sales. Minimum wage doesn't work.
Because all businesses and business owners are evil. Yes certain people will get an undeserved raise, everyone will pay more for things like groceries and fast food, and other jobs will be replaced with robots or sent abroad. Nobody ever said an understanding of economics was a voting requirement.
just some real thoughts wrote:
fdssss wrote:
I'm not an economist but thinking through this I wouldn't expect the increases to be 1 for 1. For example maybe labor is 50% of McDonald's costs. So if the cost of labor goes up 20% then the price of food only goes up 10%. So now the minimum wage worker whose wage went up 20% has greater purchasing power at McDonald's.
Except when you raise prices you lose sales. So you have to raise them MORE to compensate and still break even. And then you lose even more sales. Minimum wage doesn't work.
Minimum wage does work.
Card and Krueger argued for the advantages, then Burkhauser, Couch and Wittenburg showed that there is a slight but statistically significant decline in the demand for low-skill workers. Fewer workers implies lower aggregate demand, and on average supply creates demand (Say's Law, weak form).
However, as I noted in my previous post, there are costs to society not necessarily measured in Burkhauser, Couch and Wittenburg.
Minimum wage history
1997 - $5.15 = $8.34 in 2020 dollars
2007 - $5.85 = $7.45
2008 - $6.55 = $8.01
2009 - $7.25 = $8.86
food 4 thought wrote:
Minimum wage history
1997 - $5.15 = $8.34 in 2020 dollars
2007 - $5.85 = $7.45
2008 - $6.55 = $8.01
2009 - $7.25 = $8.86
Interesting, especially in context of the rich getting richer, and the extremely rich becoming obscenely rich during the sample period.
principles of economics wrote:
food 4 thought wrote:
Minimum wage history
1997 - $5.15 = $8.34 in 2020 dollars
2007 - $5.85 = $7.45
2008 - $6.55 = $8.01
2009 - $7.25 = $8.86
Interesting, especially in context of the rich getting richer, and the extremely rich becoming obscenely rich during the sample period.
Yes, and what about the concept that it is the right thing to do for people instead of just focusing on economic impact for businesses?
And to follow up on some earlier posts, it is known that most lower wage workers will spend every penny in their pocket stimulating the economy versus tax cuts for the richest who take their $ off-shore.
There are a bunch of idiots that assume every company is making massive profits and can afford to pay their basic workers 50% or more than they already do. There are already so many failed businesses, what do people think will happen when owners that pay $9 or $10 an hour for some basic work suddenly have to pay $15 an hour? They're either going to hire fewer people and try to get by with fewer workers, or they're going to go out of business. Both situations will mean less people getting hired, and unemployment goes up. In addition to rising costs of products and services to help offset the higher minimum wage increase.
The price of jobs should be a naturally set thing. If there is no one who wants to do that job at that price, then you have to raise it. And if it's so easy to run a company and there's extra money, then other people should do it for cheaper and make the other people lower their prices to match it. Which makes things cheaper for everyone.
george co wrote:
Yes, and what about the concept that it is the right thing to do for people instead of just focusing on economic impact for businesses? .
Economic costs are accounting costs plus opportunity costs.
Social costs include the concept that it is the right thing to do, but not in the context of subsidizing sloth. Rather it is viewed as necessary because the wages are not the perfectly competitive wages.
Wait... wrote:
If you have to pay your workers more money then the prices of what you are selling have to go up to continue to break even on what you are selling, so raising the minimum wage wouldn't accomplish anything other than inflation, so why?
The economic models some posters are hinting at assume business community have no other option but to pay workers. IMO, anyone who obtains a master or above in economics and plans on working as an economist should at least have an undergrad biz minor.
Employers attempt to make total labor cost a percentage of revenue. Let's say 5% for a particular industry. If a business needs to have a certain percentage of labor overseas, that is what a corporation will do. If business needs to rely on fewer employees and relay on improvements in technology, that is what a business will do. Self serve lines in grocery stores. Eventually MCD will have self serve lines.
Assuming based on the simplistic examples given by other posters and no change in the number of workers, businesses will be forced to suck up some labor cost. Prices are determined by the market not labor costs.
Fifty years ago, there were no call centers in India and SE Asia for U.S. companies. Fifty plus years ago, there were no atms. Banks in big cities used to have a dozen plus bank tellers working at once. Employers know how to adjust to increases in minimum wage.
Who benefits from increases in minimum wage? Skilled labor. When increases in minimum wage occur electricians, nurses, plumbers, highly skilled mechanics and pilots enjoy wage increases. Union workers. Skilled labor jobs cannot be sent overseas and cannot be replaced by robots.
Wait... wrote:
If you have to pay your workers more money then the prices of what you are selling have to go up to continue to break even on what you are selling, so raising the minimum wage wouldn't accomplish anything other than inflation, so why?
I suppose we could debate whether there needs to be a minimum wage (I say yes), but the minimum wage has been stuck where it is for more than a decade. That's not really something that should continue.
principles of economics wrote:
Economic costs are accounting costs plus opportunity costs.
Social costs include the concept that it is the right thing to do, but not in the context of subsidizing sloth. Rather it is viewed as necessary because the wages are not the perfectly competitive wages.
You might be right. Or may be wrong. I don't know.
I do know that if you can't communicate any better than this, how can you expect a dialog? I am but a commoner, but have no idea what you are trying to say.
george co wrote:
principles of economics wrote:
Interesting, especially in context of the rich getting richer, and the extremely rich becoming obscenely rich during the sample period.
Yes, and what about the concept that it is the right thing to do for people instead of just focusing on economic impact for businesses?
And to follow up on some earlier posts, it is known that most lower wage workers will spend every penny in their pocket stimulating the economy versus tax cuts for the richest who take their $ off-shore.
Minimum wage harms the poor and causes inflation. The morally correct thing to do is remove arbitrary price floors and give poor people maximum opportunity to climb the ladder of employment.
Minimum wage was originally concocted as a way to prevent non-whites from getting jobs. It was not and is not about helping the poor. Supporters are on the morally wrong side of the debate.
If you pay your McDonald's worker more, they can actually afford eating at McDonald's too.
It's actually quite uncapitalistic not to raise the wages. You want to have as many good paid workers as possible because they are also the ones who buy your stuff.
Even Walmart figured that out a little bit.
You are arguing the differences in innovation: those innovations that decrease the requisite human capital for a given output level, versus those that improve the marginal productivity of a specified level of human capital.
Example: technology that allows a nurse to do what a MD did, versus technology that still requires a MD, but increases the quality and (or) quantity of the work on a per hour basis.
Those companies who adjust to wages by outsourcing have often incurred substantially higher costs over the product life cycle, to include far more service after the sale because of substandard production of goods and services.
Moreover, when enough people are laid off domestically, those businesses who outsourced to preserve their profit model see sales dropping. This is precisely what occurred in the latter half of the 1920s, although it was consolidation and not outsourcing per se, and was the major catalyst to the initial and sharp decline of the stock market. The depression was more the result of poor Fed decisions in '31.
Friedrich Engels wrote:
If you pay your McDonald's worker more, they can actually afford eating at McDonald's too.
It's actually quite uncapitalistic not to raise the wages. You want to have as many good paid workers as possible because they are also the ones who buy your stuff.
Even Walmart figured that out a little bit.
That is what Card and Krueger argued in the mid '90s.
Friedrich Engels wrote:
If you pay your McDonald's worker more, they can actually afford eating at McDonald's too.
It's actually quite uncapitalistic not to raise the wages. You want to have as many good paid workers as possible because they are also the ones who buy your stuff.
Even Walmart figured that out a little bit.
Economic growth is driven by capital investment, not consumption.
Limousine Libertarian wrote:
Minimum wage harms the poor and causes inflation. The morally correct thing to do is remove arbitrary price floors and give poor people maximum opportunity to climb the ladder of employment.
Minimum wage was originally concocted as a way to prevent non-whites from getting jobs. It was not and is not about helping the poor. Supporters are on the morally wrong side of the debate.
So how does a person making $8 an hour buy their son/daughter a winter coat after rent, food, utilities, transportation, trip to the doctor............ What do we do to give everyone a minimum shot at a decent life?