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1+1 = 2 has nothing to do with minimum wage. If you want to use numbers try some relevant ones.
1+1=2 represents labor cost of goods + profit = price. Now you want to increase the labor cost, which is the part of cost of goods, from 1 to 2, then you should expect the price to go to 3 rather than remain the same.
Why does this Fox News talking point continue to be regurgitated in every minimum wage thread? This is beyond assinine. "Why not make it $1 million / hour!!!"
Well duh, we want to be a third world country.
I don't watch fox, or whatever other silly television passes as news much at all...I am an Agorist and could care less about what drivel comes from the media for the most part.
My question to you is, what do you think would happen if you made the minimum wage (fill in any arbitrary standard amount you please)? Do you think that those making minimum wage would have any more purchasing power? Do you think that whatever your fair amount for minimum wage would change economic disparity between those earning minimum wage versus those with more valuable skills?
1+1=2 represents labor cost + material cost = price. Now you want to increase the labor cost from 1 to 2, then you should expect the price to go to 3 rather than remain the same.
Quote:
Originally Posted by irspow
My question to you is, what do you think would happen if you made the minimum wage (fill in any arbitrary standard amount you please)? Do you think that those making minimum wage would have any more purchasing power? Do you think that whatever your fair amount for minimum wage would change economic disparity between those earning minimum wage versus those with more valuable skills?
The concept with minimum wage is cost-push inflation. The correct business formula is as follows:
If revenues and profit are to be held constant, it comes down to labor costs and production costs. Production costs are dependent on demand-pull inflation, which is the price of energy. The price of energy drives all prices in the economy. Inflation is energy prices. If energy prices drop (like gas has the last two months), business expenses will drop more than any miniscule increase in labor costs. Labor costs actually make up a fraction of total business expenses. They are the most adjustable expense.
Let's also account for the macroeconomy. If purchasing power is redistributed to the lower classes (which disproportionately spend their cash), it will increase the demand for products and services. If minimum wage is repealed or remains stagnant, purchasing power of the lower classes is eroded. This is a drag on the economy. The worst part -- the middle class pay for the welfare of minimum wage workers. Most SNAP recipients are employed in low-wage jobs.
Skills are irrelevant. Ideology is irrelevant. Numbers don't lie.
I don't watch fox, or whatever other silly television passes as news much at all...I am an Agorist and could care less about what drivel comes from the media for the most part.
My question to you is, what do you think would happen if you made the minimum wage (fill in any arbitrary standard amount you please)? Do you think that those making minimum wage would have any more purchasing power? Do you think that whatever your fair amount for minimum wage would change economic disparity between those earning minimum wage versus those with more valuable skills?
In the absence of greed, they would have more purchasing power than in the absence of a wage increase. But some people - e.g. landlords - see that as an opportunity to raise prices.
So you are asserting that those who earn minimum wage would have their purchasing power increased even though everyone else would be getting a bump in pay to reflect their superior value to the market? Okay. Everyone who isn't making minimum wage, and all businesses that employ minimum wage earners are just going to take a cut in purchasing power and profit just because...Okay.
In the absence of greed, they would have more purchasing power than in the absence of a wage increase. But some people - e.g. landlords - see that as an opportunity to raise prices.
And that landlord would also have increased cost, because all the labor downstream would be increased and passed on the them. What you call greed, is in fact good business sense (not in business to lose money) and reality.
If revenues and profit are to be held constant, it comes down to labor costs and production costs. Production costs are dependent on demand-pull inflation, which is the price of energy. The price of energy drives all prices in the economy. Inflation is energy prices. If energy prices drop (like gas has the last two months), business expenses will drop more than any miniscule increase in labor costs. Labor costs actually make up a fraction of total business expenses. They are the most adjustable expense.
Let's also account for the macroeconomy. If purchasing power is redistributed to the lower classes (which disproportionately spend their cash), it will increase the demand for products and services. If minimum wage is repealed or remains stagnant, purchasing power of the lower classes is eroded. This is a drag on the economy. The worst part -- the middle class pay for the welfare of minimum wage workers. Most SNAP recipients are employed in low-wage jobs.
Skills are irrelevant. Ideology is irrelevant. Numbers don't lie.
You talk a very good game. Unfortunately for you, numbers don't lie. Neither does historical data. Historically, raising the minimum wage has never resulted in a long term increase in purchasing power for minimum wage earners. Not one single time.
What does happen is that minimum wage earners get a brief surge in purchasing power (1-2 years) before the markets adjust to the new standard, at which point they return to being unable to afford luxuries.
Now, let's talk about your cost-push inflation. While it's true that when energy prices drop business costs go down, what you aren't taking into account is the instability of energy prices. True, gas has dropped the past couple of months. However, all it takes is a terrorist attack, a new war in the Middle East (which looks more and more likely every day) or for Washington to pass some new regulations to drive prices back up again. For that matter, none of that is even needed if OPEC decides to start playing with numbers. As a side note, the Chief of OPEC stated today that he predicts oil prices will rebound by year's end. So much for the idea of energy prices continuing to drop.
Further, when you're talking about increasing labor costs by +/- 40% while energy prices are only dropping by +/- 5%, how do you make the assertion that cost push inflation is going to go down or remain stagnant? You're talking about increasing business costs by +/- 35% and you expect prices to remain the same?
Last but not least, according to EIA electricity prices are up by 2.6% from last year, so whether gas is going down or not is irrelevant to the discussion.
If revenues and profit are to be held constant, it comes down to labor costs and production costs. Production costs are dependent on demand-pull inflation, which is the price of energy. The price of energy drives all prices in the economy. Inflation is energy prices. If energy prices drop (like gas has the last two months), business expenses will drop more than any miniscule increase in labor costs. Labor costs actually make up a fraction of total business expenses. They are the most adjustable expense.
Let's also account for the macroeconomy. If purchasing power is redistributed to the lower classes (which disproportionately spend their cash), it will increase the demand for products and services. If minimum wage is repealed or remains stagnant, purchasing power of the lower classes is eroded. This is a drag on the economy. The worst part -- the middle class pay for the welfare of minimum wage workers. Most SNAP recipients are employed in low-wage jobs.
Skills are irrelevant. Ideology is irrelevant. Numbers don't lie.
So if all else are constant and you push up the labor cost, what happens to the profit?
The major thing to take away from that article is that it collected the numbers from every study done since 1990 concerning the elasticity of fast food demand. Not one or two, but every study. The average works out to a 1% loss in sales for every 1% increase in price.
The 15% increase to total cost, on a profit margin of ~3% (fast food average margin), now results in 15% less revenue. Price increases will lower revenue even further, so somewhere in this equation of absorbing 15% increased total costs, we need to recoup so we can be profitable. If I don't want to lose revenue to price increases, I must cut costs. Labor now costs 66% more, and every $90 I have per hour used to pay for 10 hourly workers, and now it only pays for 6. My particular market is very sensitive to price increases, so in order to mitigate the cost shock, I must let people go.
On a 3% profit margin in a market sensitive to price increase, what are my options other than cutting workers to lower my labor costs back to where they are profitable?
I know freemkt and others think 3% is greedy, but a 3% profit margin on cheap goods is right at the survival line. It goes much lower than that, and inflation alone will destroy you.
So where does the 66% wage increase for hourly workers come from?
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