The Ultimate Wal Mart Thread; Is Wal Mart good for America

[DragonMasterAlex]

That's right a great Economy with the masses at 25 cents an hour stocking shelves and cleaning grills with a select few Billionaire Elitist Corp Execs and the Politicians they own as well driving the best Economy America has ever seen.

DMC, please, put the crack pipe *down*. I've seen some extremist reactionaries in my time, but *damn*, man, you take the taco!

Um, it's more like 4 people at $10/hr vs 4 people at $8/hr. The employer isn't going to hire more people just for the hell of it.

No, they won't hire more just for the hell of it. They'll hire as many as they think they need to meet the needs of the business as long as they can afford them. If they can afford $40 per hour worth of employees and they need 5 employees, that's what they hire. If they can afford $40 worth of employees, they need 5 employees but minimum wage is $10 an hour, they're going to hire FOUR employees, not 5, and then pile the extra work on the other 4 employees OR just have things left undone or not done *well*. In either case, Job #5 is lost and someone's looking for work or sitting around broke.

There is an erroneous tendency among people to think that if you run a business you have unlimited cash, and it just isn't true.

Jason

 

[EagleKeeper]

Hypotheticaly:

A store was to set the min wage of their employees for $6.50 to $10.

50% increase in the labor cost, (general labor).
Assumption that that will increase the overall labor cost by 25%.

Should the business raise the cost of goods 25% or reduce the labor available.

If the goods are raised 25% that those that shop there have no had their purchasing power reduced by 20%.

With no increase in their income, they will buy 20% less items.
What happens to the suppliers when their order levels are cut back 20%.
20% cutback in labor force or a 20% reduction in manufacturing salaries?

 

[DragonMasterAlex]

Originally posted by: EagleKeeper
Hypotheticaly:

A store was to set the min wage of their employees for $6.50 to $10.

50% increase in the labor cost, (general labor).
Assumption that that will increase the overall labor cost by 25%.

Should the business raise the cost of goods 25% or reduce the labor available.

If the goods are raised 25% that those that shop there have no had their purchasing power reduced by 20%.

With no increase in their income, they will buy 20% less items.
What happens to the suppliers when their order levels are cut back 20%.
20% cutback in labor force or a 20% reduction in manufacturing salaries?

Eagle, if you don't stop thinking logically, someone is going to harm you

Nice post.

Jason

 

[EagleKeeper]

Originally posted by: DragonMasterAlex

Originally posted by: EagleKeeper
Hypotheticaly:

A store was to set the min wage of their employees for $6.50 to $10.

50% increase in the labor cost, (general labor).
Assumption that that will increase the overall labor cost by 25%.

Should the business raise the cost of goods 25% or reduce the labor available.

If the goods are raised 25% that those that shop there have no had their purchasing power reduced by 20%.

With no increase in their income, they will buy 20% less items.
What happens to the suppliers when their order levels are cut back 20%.
20% cutback in labor force or a 20% reduction in manufacturing salaries?

Eagle, if you don't stop thinking logically, someone is going to harm you

Nice post.

Jason

Ok - I will stop being such a logical NEF. (only for today)

 

[LunarRay]

DM,

What are you worrying about Ultima, you heard the AT experts, wages are highest ever, have gone up a penny at over $15.64 an hr Vs previous Govt report of $15.63 an hr. That should be plenty for Apts, food and pay bills.

How is the $15.63 or the $15.64 figure derived? BLS survey with a 90% confidence level?
The only real way to determine the real facts is to take the total earnings divided by the total working population. But, even that is not really meaningfull - too many variables. I love it when an estimate based on a 90% confidence level produces an answer with pennies and that then is used to produce smiles.
Sure, as CAD would point out, it is what we've used for years and is the best we have.. Well.. then fine.. include the relevant range of the statistical and sample error... so that folks can say 'Oh... that don't tell me much'!

But, assume (I thought it was [seasonally adjusted $15.45 and $15.46 for total private]) it to be true. What dynamics may have caused the non supervisor increase? Actual wage increases? Possible, I suppose. Could it be the survivors of job cuts were senior and made more per hour than the folks who get terminated? Possible too, I suppose. Maybe even folks got higher commissions due to the economic health. Looking at the table B3 and B4 in the BLS site there are by sector analysis that must include factors or locations that I'm unfamiliar with.. I guess they called the right folks because even retail is increasing... Maybe it is factual... we just don't know, IMO. Does it matter? Probably not much... not to us.. we spend as we do and that is factual at least.

 

[LunarRay]

Raising wages, raising prices.... inflation... the analysis must go back to some base period.

How many what ever could a dollar buy in the base period. Folks who make what ever, sell what ever and buy what ever all used to earn some base period figure. The new technology can gleem its relative value and cost structure from the base period too. The question is back to 'standard of living' how many loafs of bread can a factory worker buy today versus 1960 or '70 or what ever base period is most relevant to the 'standard of living' period in question. If a factory cannot support paying a worker the 10$ and 11$ today buys what that position bought in the relevant base period then we have a reduction to the standard we compare against.. $ are only apples and corn in disguise..

 

[sandorski]

Part of the problem here is that you have 2 polar opposites trying to acheive the same thing, Maximum Return. You have Wage Earners wanting more money and you have Share Holders wanting more money. Lately, Share Holders have been getting all the extra, while Wage Earners have been shown the door in the pursuit of Increased Profits. Would raising Wages increase Inflation? Sure, it might, depending on whether Share Holders are stuck on ever increasing returns or not. The Share Holders could temporarily take a cut in returns though, to offset Inflationary pressure.

That said, Wage Inflation is a small fish in the pond, government Deficit spending/borrowing is the real generator of Inflation.

 

[charrison]

Originally posted by: sandorski
Part of the problem here is that you have 2 polar opposites trying to acheive the same thing, Maximum Return. You have Wage Earners wanting more money and you have Share Holders wanting more money. Lately, Share Holders have been getting all the extra, while Wage Earners have been shown the door in the pursuit of Increased Profits. Would raising Wages increase Inflation? Sure, it might, depending on whether Share Holders are stuck on ever increasing returns or not. The Share Holders could temporarily take a cut in returns though, to offset Inflationary pressure.

That said, Wage Inflation is a small fish in the pond, government Deficit spending/borrowing is the real generator of Inflation.

Actually this is the first year since 1999 that the market has closed higher for the year. The market(the investors) has been flat for years. I am glad to see companies making profit again.

 

[Bowfinger]

Originally posted by: EagleKeeper
Hypotheticaly:

A store was to set the min wage of their employees for $6.50 to $10.

50% increase in the labor cost, (general labor).
Assumption that that will increase the overall labor cost by 25%.

Should the business raise the cost of goods 25% or reduce the labor available.

If the goods are raised 25% that those that shop there have no had their purchasing power reduced by 20%.

With no increase in their income, they will buy 20% less items.
What happens to the suppliers when their order levels are cut back 20%.
20% cutback in labor force or a 20% reduction in manufacturing salaries?

There is one fundamental problem with your example. It assumes that 100% of the cost of the merchandise is labor, i.e., there are no materials or overhead costs. If labor is only 10% of the cost, you actually increase the cost of goods by 2.5% in your example. That's not much for a 50% raise.

Even if labor is 50% of the cost, it only increases the cost of goods by 12.5%. This is substantial, but it leads to a second fallacy in your example. Increasing the minimum wage puts more money in employees' pockets, offsetting increased prices. For example, if all companies did this simultaneously, they would actually see greatly increased business. Employees get a 50% raise, the price of goods increases 2.5%, employees still have 95% of their raise left to spend on more stuff. God Bless America!

(Yes, this is grossly oversimplified. Nonetheless, it illustrates how an increase in minimum wage can increase overall prosperity.)

 

[DragonMasterAlex]

Originally posted by: Bowfinger

Originally posted by: EagleKeeper
Hypotheticaly:

A store was to set the min wage of their employees for $6.50 to $10.

50% increase in the labor cost, (general labor).
Assumption that that will increase the overall labor cost by 25%.

Should the business raise the cost of goods 25% or reduce the labor available.

If the goods are raised 25% that those that shop there have no had their purchasing power reduced by 20%.

With no increase in their income, they will buy 20% less items.
What happens to the suppliers when their order levels are cut back 20%.
20% cutback in labor force or a 20% reduction in manufacturing salaries?

There is one fundamental problem with your example. It assumes that 100% of the cost of the merchandise is labor, i.e., there are no materials or overhead costs. If labor is only 10% of the cost, you actually increase the cost of goods by 2.5% in your example. That's not much for a 50% raise.

Even if labor is 50% of the cost, it only increases the cost of goods by 12.5%. This is substantial, but it leads to a second fallacy in your example. Increasing the minimum wage puts more money in employees' pockets, offsetting increased prices. For example, if all companies did this simultaneously, they would actually see greatly increased business. Employees get a 50% raise, the price of goods increases 2.5%, employees still have 95% of their raise left to spend on more stuff. God Bless America!

(Yes, this is grossly oversimplified. Nonetheless, it illustrates how an increase in minimum wage can increase overall prosperity.)

You're in error, Bow; he didn't assume that 100% of the cost of the goods was labor, he assumed that the cost of the goods would increase in proportion to the cost of the labor cost increase. Not the same thing. YOUR example also fails to take into account a number of factors such as:

Workers bumped into a higher tax bracket
Employers not purchasing as much labor due to higher costs (Translation: Workers lose their jobs)
Employers putting off expansion of workforce due to higher costs (Translation: Other workers don't get hired in the first place)
If the workers SPEND any of the extra money they are taxed on nearly anything they buy
If the workers SAVE any of the extra money in the bank they pay MORE income tax

Let's have a look at what Ludwig Von Mises and some of his associate economists have to say about the issue, shall we?

Minimum Wage, Minimum Tax

Oh, it gets more interesting.

there is only one way to regard a minimum wage law: it is compulsory unemployment, period. The law says: it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result...

The advocates of the minimum wage and its periodic boosting reply that all this is scare talk and that minimum wage rates do not and never have caused any unemployment. The proper riposte is to raise them one better; all right, if the minimum wage is such a wonderful anti-poverty measure, and can have no unemployment-raising effects, why are you such pikers? Why you are helping the working poor by such piddling amounts? Why stop at $4.55 an hour? Why not $10 an hour? $1007 $1,0007

It is obvious that the minimum wage advocates do not pursue their own logic, because if they push it to such heights, virtually the entire labor force will be disemployed. In short, you can have [p. 134] as much unemployment as you want, simply by pushing the legally minimum wage high enough...

Unfortunately, this system does not give those numerous workers who still prefer to be producers rather than parasites the privilege of making their own free choice.

You can read the rest here.

You might also consider taking a look at Nobel Laureate Economist Milton Friedman, whose analysis shows that not only do hikes in the minimum wage eliminate job opportunities *precisely* for those at the low-end of the economic scale, but that they disproportionately target minorities, making the minimum wage a "highly effective tool in the arsenal of Racists everywhere" (Economist Walter WIlliams, who is himself a black man).

Full article, Excerpt below.

Government data show that black and white teenage unemployment rates in 1948 were about the same -- 9.4 percent black and 10.2 percent white.

But as the minimum wage rose in the 1960s and 1970s, the unemployment rate for blacks roughly doubled compared with whites -- to 37.7 percent for black teens by 1980, compared to 18.5 percent for white teens.

According to the Employment Policies Institute, 215,000 additional jobs for teens should have been created in 1995, but the minimum wage hike that year killed them -- a 3.5 percent drop in job opportunities.

This job cancellation hit black and Hispanic teens hardest -- opportunities fell by 9 percent and 3.8 percent for these groups, respectively.
According to U.S. Chamber of Commerce statistics, when Congress raised the minimum wage in 1989, the proportion of black teens who had jobs fell by 12 percent. While blacks comprised only 15.3 percent of all youngsters age 16 to 19, they suffered 30 percent of the job losses.

Economists en masse agree that the Minimum wage laws HARM the poor, they do not help them, and at the risk of being a little offensive to you all, I'll take the analysis of a Nobel Laureate over the rantings of a bunch of shmucks on an internet chatter forum (myself included) any day of the week.

Jason

 

[LunarRay]

DragonMaster,

Economists en masse agree that the Minimum wage laws HARM the poor, they do not help them, and at the risk of being a little offensive to you all, I'll take the analysis of a Nobel Laureate over the rantings of a bunch of shmucks on an internet chatter forum (myself included) any day of the week.

It is fine to follow what you believe in and you'll find support for it amongst the current economic thinkers. There is support for all theories and it is this way because there is no precise way to determine actual cause and effect. You can start with Adam and Eve and decide whether the supply of apple by Eve or the demand created by the devil in Adam's mind to eat it got us to where we are today. But, one thing is certain.. Folks buy too.. Business buys and folks buy. Us demand thinkers say that business won't buy till they think the demand is there. Some business think they can create demand by providing supply but, there is just too many variables to risk that in this day and age. I feel strongly that given enough $ into the hands of the people the incentive trickles up and the business spin up and hire. It is why a stimulus given to the spender sparks the economy.. from the great depression to this recession period..

Minimum wage laws are there for more than just the economic issue.

 

[LunarRay]

Just one observation.
Minimum wage laws if abolished would allow lower wages to be paid to workers.. some say sure but more folks would work.. true but they would starve together... at least with minimum wages only one would starve. The job of government is to insure full employment so that there is a greater demand for labor. This then has everyone employed and at an amount greater than minimum wage...
Then comes the inflation argument...
If the US consumed only US production it would create full employment.

 

[ReiAyanami]

ppl would work 24 hours a day just to pay rent.


but i'm thinking maybe everybody's wages need a trimming every now and then, cuz with 1/3rd of america fatt, they could use some good starvin'

all those moo cows at sprawl*mart

 

[DragonMasterAlex]

Originally posted by: LunarRay
Just one observation.
Minimum wage laws if abolished would allow lower wages to be paid to workers.. some say sure but more folks would work.. true but they would starve together... at least with minimum wages only one would starve. The job of government is to insure full employment so that there is a greater demand for labor. This then has everyone employed and at an amount greater than minimum wage...
Then comes the inflation argument...
If the US consumed only US production it would create full employment.

The job of government is NOT to ensure full employment, the job of government is to protect the rights of American Citizens from being violated through force or fraud.

I find it humorous that when confronted with facts and the expert testimony of Nobel Laureate economists, the best retort you could manage is "Well it's just so complex who really knows anyway?" And where, pray tell, do you come off saying that "at least with minimum wage only one would starve" ? One what, in total? Out of how many? I'm afraid your argument just doesn't make sense or bear with logic.

Go to Amazon.com. Find "Free to Choose" by Milton and Rose Friedman. But it used for a couple of dollars and read it.

Jason

EDIT: Ray, you're assuming that without minimum wage costs of all things would remain as they are now. That's not likely to be the truth, as businesses tend to pass along their savings on expenses to consumers to a certain extent. We could get into a discussion of why Rent Controls are evil next, if you like!

 

[sandorski]

I've got an idea! How about we set the Maximum Wage to $0, then everything will be Free! Imagine the Consumption that would occur.

 

[DragonMasterAlex]

Originally posted by: sandorski
I've got an idea! How about we set the Maximum Wage to $0, then everything will be Free! Imagine the Consumption that would occur.

Did you leave your logic in your other pants?

Jason

 

[LunarRay]

Originally posted by: DragonMasterAlex

Originally posted by: LunarRay
Just one observation.
Minimum wage laws if abolished would allow lower wages to be paid to workers.. some say sure but more folks would work.. true but they would starve together... at least with minimum wages only one would starve. The job of government is to insure full employment so that there is a greater demand for labor. This then has everyone employed and at an amount greater than minimum wage...
Then comes the inflation argument...
If the US consumed only US production it would create full employment.

The job of government is NOT to ensure full employment, the job of government is to protect the rights of American Citizens from being violated through force or fraud.

I find it humorous that when confronted with facts and the expert testimony of Nobel Laureate economists, the best retort you could manage is "Well it's just so complex who really knows anyway?" And where, pray tell, do you come off saying that "at least with minimum wage only one would starve" ? One what, in total? Out of how many? I'm afraid your argument just doesn't make sense or bear with logic.

Go to Amazon.com. Find "Free to Choose" by Milton and Rose Friedman. But it used for a couple of dollars and read it.

Jason

EDIT: Ray, you're assuming that without minimum wage costs of all things would remain as they are now. That's not likely to be the truth, as businesses tend to pass along their savings on expenses to consumers to a certain extent. We could get into a discussion of why Rent Controls are evil next, if you like!

I really hope the humor you gain from my comments comes with just a tad of understanding of my POV. I know what they say, have said and are going to say. It is the debate that is with out solution. It is why there is more than one school of thought. One economist can reasonably argue her point and another can reasonably refute it. The logic is simple... if there was just one possible cause and effect don't you think ALL economic thought would be focused in that direction. It is not. I happen to be on the demand side of the equation as the driver and minimum wage laws affect the demand side as well as the supply side.. My point is just as simple. If the $ is in the hands of the people first they will spend it and buy from the business that has the forsight to provide it... demand driven economy makes better sense to me than supply side.. give the money (stimuli) to the business as tax credits to hire while giving it to people as well and we may agree to some extent but, trickle down from the wealthy investor... not hardly.

Re your edit.
I don't assume anything stays the same with abolishment of MWL. You assume the savings will be passed down. I assume it will be taxed and then paid to investors as risk reward or used for expansion assuming the demand is there... but, who buys this supply? Surely not the now less rich worker.. he has to work two jobs to make ends meet thus denying the job creation aspects of the argument.. if business did pass the savings to the consumer I assume you assume the conumer who owns the tent the guy who just lost 1$ an hour lives in will cut his rent.. given that is the decent thing to do.. I doubt it. Remember we are greedy! It is what causes those who have to bucks to get more and to spend that to have what ever they can afford... sounds demand driven again.. to me anyway.. But, of course the argument for Say's Law (supply creates its own demand) is equally powerfull.. wrong but powerfull.. IMO

 

[Bowfinger]

After digging around this evening, I have concluded there are as many theories about the minimum wage as there are economists. I have seen studies definitively proving the minimum wage increases unemployment. I have seen equally definitive studies proving it does not. I have seen studies refuting each other. There were several right-wing attack pieces that discredited themselves by raising the straw man of some absurdly high minimum wage, including the one quoted by DMA above. When a supposedly objective analysis resorts to such nonsense, it suggests they probably slanted their study to match their biases.

The statistics are mixed. It is a fact that low-wage employment increased after the 1996 increase. It is a fact that low-wage employment fell after the 1991 increase. However, the economy was booming in '96 and in a recession in '91, so neither result is terribly informative or surprising.

To sum it all up for everyone, I found this 1997 Business Week column. It is short enough for casual reading and from a source most would consider to be between centered and moderately right of center:

So Much for the Minimum-Wage Scare

When Congress debated the minimum wage hike in 1996, critics warned that it would cost jobs, especially among the low-skilled. In theory, the free market was already paying what low-wage workers were worth. Raise the wage, and you price workers above the value they can add. An excessive price for labor yields a reduced quantity of jobs.

Well, the minimum wage was raised from $4.25 to $4.75 last Oct. 1; it will increase again, to $5.15, on Sept. 1. But the unemployment rate keeps dropping. A study by the Economic Policy Institute (EPI) finds no job losses. If anything, there is a slight job increase, even among teenagers and young adults, who would be the most likely to be displaced. The EPI also finds great economic benefits for the working poor. Prior to the minimum wage hike, 50.6% of working teenagers earned less than the new minimum of $5.15. All will now receive higher rewards for their labor. The two-thirds of minimum-wage workers who are adults will also benefit.

But isn't this just a case of lucky timing? Surely, unemployment is down because the economy is booming. In theory, the economy might have created even more jobs if employers didn't have to pay excess wages to the low-skilled. As we shall see, however, the theory fails.


UNDERDOG

This debate, of course, is ideological as well as empirical. Conservatives believe the market naturally prices things appropriately; they dislike regulation. Liberals believe market forces sometimes price things wrong and often take unfair advantage of the underdog; regulation can sometimes yield better and fairer rates. On the minimum wage, the empirical question is whether greater rewards to low-wage workers are in fact offset by higher unemployment.

As Congress debated the minimum wage, a parallel debate raged among academic economists. Princeton University labor economists David Card and Alan Krueger, in their 1995 book Myth & Measurement, collected data comparing employment effects of a state minimum wage increase in New Jersey with employment trends across the river in Pennsylvania, where no comparable hike had been legislated. They found that higher wages in New Jersey did not produce higher unemployment. Evidently, the new wages reduced turnover expenses (recruiting and training), and employers could also squeeze productivity gains out of the now higher-paid, better-motivated, and more stable workforce. These benefits offset the higher costs. The Card-Krueger research was widely cited by proponents of the 1996 minimum-wage hike.

Opponents of the minimum wage pointed to a study by a rival group of labor economists, Donald Deere and Finis Welch of Texas A&M University and Kevin M. Murphy of the University of Chicago. Their study examined the last minimum-wage hike, in 1990-91. They calculated that the earlier increase, from $3.35 to $4.25, resulted in job losses among all the demographic groups they studied, with pronounced negative effects among school dropouts, teenagers, minorities, and young workers generally.


VOLATILE

However, critics observed that 1990-91 was a recession, and faulted Deere et al. for confusing the effects of the business cycle with the impact of a higher minimum wage. The study had attempted to correct for this effect by using changes in employment rates for prime-age males as a proxy for business-cycle effects. But this particular variable likely understated the impact of the recession, since teen and minority employment is much more volatile and vulnerable to general downturns.

Now EPI economists have applied the same Deere-Welch-Murphy model to the latest hike, which occurred during a boom. The model that showed a higher minimum wage costing jobs in 1990-91 now shows the minimum-wage hike increasing employment--among teenagers, minorities, and dropouts. (The study, The Sky Hasn't Fallen, by Jared Bernstein and John Schmitt, is available from the EPI. Disclosure: I serve on the EPI's board.)

This research strongly suggests that Deere et al. were mistakenly attributing recession job losses to the minimum wage--and that economic booms can compensate for any slight negative effects of a minimum-wage hike (Alan Greenspan, take note). A $15 minimum wage might indeed be both inflationary and destructive of jobs. But a modestly higher minimum wage creates real economic benefits for the working poor without harming the larger economy.

A society with a work ethic needs jobs that pay a living wage. Sensible minimum wage laws and a Fed willing to tolerate growth can both help.

BY ROBERT KUTTNER

In summary, it appears that modest increases in the minimum wage have, at worst, a minimal impact on employment, and may have no significant impact at all. The key criteria is modest increases. However, there is no consensus among economists and the data is open to interpretation.



Edit: typo

 

[sandorski]

Originally posted by: DragonMasterAlex

Originally posted by: sandorski
I've got an idea! How about we set the Maximum Wage to $0, then everything will be Free! Imagine the Consumption that would occur.

Did you leave your logic in your other pants?

Jason

Hehe, nope. Just wanted to make a point. That point being that there is such a thing as too Low of a wage(from a business Cost/Free Market perspective) and that raising or lowering the wage does not have a 1:1 effect on Price. The whole issue of Minimum Wage is more complex than a simple Raise = Less jobs or even Inflation, in fact there is little way of knowing the exact effect until it is done. If an increasing number of people are working for Minimum Wage or a lowered wage than before and if an increasing number of people are unable to support themselves on those wages, then you have a growing serious problem.

Free Market Capitalist Theory has many strengths, but one of its' weaknesses regards Social Issues. A growing Under Class undermines the system and causes dischord. Even your much valued "Skills" is a poor method to determine the Value of a Worker. Certainly "Skills"(specifically needed skills) should give a Worker a Wage advantage, but there are many "skilled" workers right now that can't find jobs where those "skills" can be applied. In short, "skills" only benefit a few so even if a worker gains "skills" that is no gaurantee of a Living Wage, just an increased chance. As such, allowing the 'Unskilled" or under utilised "skilled" to fall to subsistence wages hurts Society in the Longterm.

This doesn't necessarily mean that Minimum Wage should be raised however. Again, the issue is rather complex. If a company like Walmart, Profits and all, is to be tolerated and increasingly common though, then a raise becomes increasingly important.

 

[LunarRay]

Contrary to the myopic view of some there is a fairly rational approach (among many) that one can grip onto regarding minimum wage and its affect on business...
That approach has to do with the product or services offered by the business. The elasticity of those products specifically. For instance, food is about as inelastic a product I can think of. So it would seem reasonable for the food industry to directly pass the increased cost of Minimum wage as it affected them right on to the consumer. Since most food folks have the same cost structure the competitive factors may not play. Conversely if there was an abolishment of minimum wage law the savings would not go into expansion cuz the supply and demand are equalized it wouldn't go into price reduction... no incentive to do it. It would go into the pockets of the share holder and upper management for the brilliant job they did getting it abolished.
Additionally, products of a very low price have no notice at all to small price increases. McDonald's where many minimum wage folks work would not sell less burgers with a 10 cent per burger increase and they may even hold the increace down to gain an advantage..
The products that are elastic are generally provided or made by folks well above minimum wage.. so no problem there either.. There are products that would be affected to some extent by minimum wage changes but, there can be no doubt the affect is not accross the economic spectrum.
To the extent prices do not fully reflect the added cost the folks benefit and the owner does not.. To argue the factory would hire more folks presumes a demand for the added products (Say's law) but, I don't agree with that notion fully and across the entire spectrum.. It depends on the product and all the economic dynamics involved..

 

[DragonMasterAlex]

OK well...I'll read this in the morning. 3 margaritas and 2 hours of Simpson's Hit and Run have left me too tired to think straight, much less talk about econmic stuff tonight.

Have a good night, all. TTYITM

Jason

 

[Bowfinger]

Originally posted by: DragonMasterAlex

Originally posted by: Bowfinger

Originally posted by: EagleKeeper
Hypotheticaly:

A store was to set the min wage of their employees for $6.50 to $10.

50% increase in the labor cost, (general labor).
Assumption that that will increase the overall labor cost by 25%.

Should the business raise the cost of goods 25% or reduce the labor available.

If the goods are raised 25% that those that shop there have no had their purchasing power reduced by 20%.

With no increase in their income, they will buy 20% less items.
What happens to the suppliers when their order levels are cut back 20%.
20% cutback in labor force or a 20% reduction in manufacturing salaries?

There is one fundamental problem with your example. It assumes that 100% of the cost of the merchandise is labor, i.e., there are no materials or overhead costs. If labor is only 10% of the cost, you actually increase the cost of goods by 2.5% in your example. That's not much for a 50% raise.

Even if labor is 50% of the cost, it only increases the cost of goods by 12.5%. This is substantial, but it leads to a second fallacy in your example. Increasing the minimum wage puts more money in employees' pockets, offsetting increased prices. For example, if all companies did this simultaneously, they would actually see greatly increased business. Employees get a 50% raise, the price of goods increases 2.5%, employees still have 95% of their raise left to spend on more stuff. God Bless America!

(Yes, this is grossly oversimplified. Nonetheless, it illustrates how an increase in minimum wage can increase overall prosperity.)

You're in error, Bow; he didn't assume that 100% of the cost of the goods was labor, he assumed that the cost of the goods would increase in proportion to the cost of the labor cost increase. Not the same thing.

I think it is two different ways of saying the same thing. The total cost of an item is the sum of many costs: labor, materials, overhead, transportation, taxes, etc. Labor is only one component; depending on the item it might be a trivial portion or the primary portion. How does it follow that the total cost for an item will increase in direct proportion to labor costs unless labor is most of the cost?

In most cases, a 10% increase in labor costs will not increase the price of goods by anywhere near 10%.

YOUR example also fails to take into account a number of factors such as:

Workers bumped into a higher tax bracket -- A higher bracket only affects the excess income above the bracket cut-off. The worker still has more money to spend. Moreover, though I'm too lazy to go look at tax tables right now, I am pretty sure someone earning only $10 per hour won't see much of it go to taxes, maybe an extra 5% at most on the excess. That doesn't materially affect my example

Employers not purchasing as much labor due to higher costs (Translation: Workers lose their jobs) -- But that contradicts EagleKeeper's premise that the entire increased labor cost will be passed on as a price increase. If the employers reduces staff to control labor costs, then the price of the item will not increase as much.

Employers putting off expansion of workforce due to higher costs (Translation: Other workers don't get hired in the first place) -- More disposable income means higher demand. The employer will have more incentive to expand his workforce to meet this demand. Plus, as above, if the employer truly passes the entire labor cost on as a price increase, he has no disincentive to expand.

If the workers SPEND any of the extra money they are taxed on nearly anything they buy -- That's true whether they get the raise or not. It doesn't materially change the example.

If the workers SAVE any of the extra money in the bank they pay MORE income tax -- See above

As I said, it was a simplified example. It demonstrates the mechanism by which a higher minimum wage may increase prosperity. However, I don't think any of the factors you list has a major impact on the example anyway. My comments ate in italics and follow each example above.

 

[dirtboy]

Originally posted by: LunarRay
Just one observation.
Minimum wage laws if abolished would allow lower wages to be paid to workers.. some say sure but more folks would work.. true but they would starve together... at least with minimum wages only one would starve.

This is bogus. Very few people actually only get paid minimum wage.

 

[dirtboy]

Originally posted by: Bowfinger
In summary, it appears that modest increases in the minimum wage have, at worst, a minimal impact on employment, and may have no significant impact at all.

Perhaps, but it affects other things. I can no longer get a 99 cent Big Mac thanks to the increases.

 

[sandorski]

Originally posted by: dirtboy

Originally posted by: Bowfinger
In summary, it appears that modest increases in the minimum wage have, at worst, a minimal impact on employment, and may have no significant impact at all.

Perhaps, but it affects other things. I can no longer get a 99 cent Big Mac thanks to the increases.

That works in your favour.