Raising the Minimum Wage

[JKDS]

Why does labor follow that rule?

Isnt it true that some goods are uneffected by price changes? Because they are necessities? If thats the case, labor could follow that rule instead. Labor is a necessity to business, and gets replaced very quickly when it isnt.

There wasnt a minimum wage during the industrial revolution, yet tons lost jobs as they were replaced by machines. Thats gonna happen again as soon as labor isnt necessary. But the fact is, you cant sell burgers unless you have someone flipping the patties.

[wufwugy]

Why does labor follow that rule?

Because everything with a cost follows that rule, regardless of what it is.* The supply curve is the foundation behind the theory of economics itself, which attempts to evaluate all resources that have a supply or demand, and it does so through prices and costs.

Isnt it true that some goods are uneffected by price changes? Because they are necessities?

Excellent question! The answer is no, things being "necessities"** do not mean they are unaffected by price changes. Even the world's greatest necessity, water, is bounded by supply and demand. The demand for drinking water is generally constant (albeit not inelastic), and if the supply increases its cost will decrease while if the supply decreases its cost will increase. The lay tend to think demand for something like water is inelastic, which is why people tend to hate the idea of price gouging in disasters. But even water is not truly inelastic. There is a good deal of waste in all sorts of situations. Even in disasters where water is scarce, the demand is not inelastic since every individual applies a different value to water at any given point in time. A simple example of this is seen in differences in what you yourself would pay for water based on different scenarios. If you already have a few jugs, you will pay nothing. If you are dying of thirst, you will pay a lot. There are an uncountable different situations in which the price you put on a bottle of water changes, and this value you and every other person place on water has a macro effect of giving it price. So, in a disaster, if you already have a couple gallons and somebody else has none, they are willing to pay much more for water than you are because they value the purchase of it more. Yet if the water was "free", you would probably get more of it, which would end up being at the expense of those who need it more than you. Prices are the tool that allocates resources to the people who need them most. Laypeople tend to think that regulations are this, but they're not. Regulations are the opposite because they make it harder for those with need to address the need.

The layperson says "but the person with no water may not be able to pay and the solution to this problem is to make water free", and the real-world final result of making something "free" is shortage. All resources are finite and so the "free" water still has a real cost. On the macro scale, extracting prices from a resource and making it "free" increases the amount of waste and results in depleted levels of water. A good example of this waste is in California's drought. Because water is not a market good, a gigantic portion of California farms grow almonds. Well, almonds soak up gigantic amounts of water per calorie relative to other crops. If water was priced on a market, there would be no shortage in the first place because farmers would not have been so heavily subsidized to grow so many almonds in the first place.

In a water market, there would instead be a drive towards new abundance since any company or individual that did that would gain more from doing so than they would gain from not doing so. So next time somebody talks about California's drought, just tell them that our "free" water policies subsidize our almond-eating at the expense of every Californian. What a complex disaster this is, all with just one simple, unforced-error: price regulation.

There wasnt a minimum wage during the industrial revolution, yet tons lost jobs as they were replaced by machines. Thats gonna happen again as soon as labor isnt necessary. But the fact is, you cant sell burgers unless you have someone flipping the patties.

You also can't sell burgers if the flipper costs more than the revenues generated from selling burgers. Other than that, I'm not sure what you're getting at here.


* One of the main political gripes that economics-minded people have is that most voters ignore costs. They support regulations and welfare virtually entirely because of this. For example, Medicare policies increase costs of healthcare disproportionately, but voters tend to not account for that because they believe that when somebody else is taxed to pay for it, the costs "aren't real" or something. They believe that the value of a good or service can't be measured. But that simply isn't true. Economics is about measuring the value of anything. The bottom line is that every dollar in tax and every dollar spent incurs a cost. The same is true of every regulation. Voters tend to say "we need more healthcare for the elderly because healthcare is good", yet what's really happening is that because Medicare is fundamentally inefficient compared to the market, healthcare costs more than it otherwise should, and the elderly end up receiving less and lower quality care than if the voters wielded cost discipline. Renton tends to call people ignoring the inherent cost of anything and everything the something-for-nothing idea.

** I put "necessities" in quotes because the vast majority of what we consider necessary is not necessary. Yes, food is necessary, but there are an uncountable number of variables about food that are not. Eating too much is not necessary, eating unhealthily is not necessary, eating just one of many sufficient diets is not necessary. Prices affect all of this.

[spoonitnow]

Isnt it true that some goods are uneffected by price changes?

I don't believe this is the case, and I'm trying hard to come up with one example of something that's unaffected by price changes.

[Renton]

I think the problem is looking at this like "x number of jobs vs y number of jobs." A job can take many different forms, and can be anywhere along the spectrum from part-time to full-time to overtime. Math says that an increase in the minimum wage reduces employment, but that reduction may just be that people don't get as many hours and are ultimately paid a little less, in spite of the increase. The reduction in employment could also be reported as a reduction in higher paying jobs that is made up for by an increase in minimum wage jobs, so the net amount of income paid out is decreased, and hence the "employment."

Why does labor follow that rule?

Isnt it true that some goods are uneffected by price changes? Because they are necessities? If thats the case, labor could follow that rule instead. Labor is a necessity to business, and gets replaced very quickly when it isnt.

There wasnt a minimum wage during the industrial revolution, yet tons lost jobs as they were replaced by machines. Thats gonna happen again as soon as labor isnt necessary. But the fact is, you cant sell burgers unless you have someone flipping the patties.

Labor is not a necessity. A business can only exist if it is capable of making a profit that, accounting for the ever-present risk of loss, is competitive with other uses of the business owner's time and capital. In other words, yes, he can "simply accept a lower profit margin" down to a certain critical point where he would be better off liquidating his business and buying government bonds with it. So below that critical profit threshold, he doesn't need labor at all.

But businesses have inertia so generally they're going to try to survive under the new conditions. They will generally begin by firing their dead weight, i.e. people who were productive at the old wage but are no longer productive at the high minimum wage (woe to those people btw, who may have no hope finding any job ever). They will have a bit of latitude to increase prices, assuming their competitors have to deal with the same obstacle, so they will do that if they can (woe to those companies that must compete on a regional or global scale with cheaper labor competitors, btw). As basic economics teaches us, an increase in the price of the business's goods or services results in a reduction of the demand for those goods or services, so he will trading at a suboptimal price for creating the amount of demand for his product to support his original business. This may result in downsizing the business, including letting people go and liberating some capital.

In regard to your point about the industrial revolution, I couldn't detect a lamenting tone from your post about those people losing jobs to machines. This is generally an incredibly good thing for society when jobs become obsolete. I'm pretty skeptical of labor being rendered completely unnecessary within the next thousand years or so. There are always more things for humans to do, and the obsolescence generally frees human labor to produce things further up Maslow's pyramid. Maybe in 2200 the most common job in the economy will be video game programmer, who knows.

[spoonitnow]

I think the problem is looking at this like "x number of jobs vs y number of jobs." A job can take many different forms, and can be anywhere along the spectrum from part-time to full-time to overtime. Math says that an increase in the minimum wage reduces employment, but that reduction may just be that people don't get as many hours and are ultimately paid a little less, in spite of the increase. The reduction in employment could also be reported as a reduction in higher paying jobs that is made up for by an increase in minimum wage jobs, so the net amount of income paid out is decreased, and hence the "employment."



Labor is not a necessity. A business can only exist if it is capable of making a profit that, accounting for the ever-present risk of loss, is competitive with other uses of the business owner's time and capital. In other words, yes, he can "simply accept a lower profit margin" down to a certain critical point where he would be better off liquidating his business and buying government bonds with it. So below that critical profit threshold, he doesn't need labor at all.

But businesses have inertia so generally they're going to try to survive under the new conditions. They will generally begin by firing their dead weight, i.e. people who were productive at the old wage but are no longer productive at the high minimum wage (woe to those people btw, who may have no hope finding any job ever). They will have a bit of latitude to increase prices, assuming their competitors have to deal with the same obstacle, so they will do that if they can (woe to those companies that must compete on a regional or global scale with cheaper labor competitors, btw). As basic economics teaches us, an increase in the price of the business's goods or services results in a reduction of the demand for those goods or services, so he will trading at a suboptimal price for creating the amount of demand for his product to support his original business. This may result in downsizing the business, including letting people go and liberating some capital.

In regard to your point about the industrial revolution, I couldn't detect a lamenting tone from your post about those people losing jobs to machines. This is generally an incredibly good thing for society when jobs become obsolete. I'm pretty skeptical of labor being rendered completely unnecessary within the next thousand years or so. There are always more things for humans to do, and the obsolescence generally frees human labor to produce things further up Maslow's pyramid. Maybe in 2200 the most common job in the economy will be video game programmer, who knows.

"Yeah but like, aren't there plenty of like, examples and stuff of times that like, supply and demand doesn't work like this? I mean people act like, irrationally a lot of the time."