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The micro supply and demand view that increased labor force from greater participation rate by women causing suppression of wages is incorrect. Such a view wou

The micro supply and demand view that increased labor force from greater participation rate by women causing suppression of wages is incorrect. Such a view would suggest that any increase in labor hampers wages. What actually happens is that increased worker participation itself grows GDP, which increases demand of inputs, including labor. Unlike a short-term supply and demand curve, the economy operates on long-term shifts of aggregate labor supply and demand, in which an increase of aggregate supply of labor causes an aggregate increase in demand for labor (by modifying the overall demand curve of goods - consumption goes up), ending in a place where increased labor force participation may actually result in a higher price of labor than before. In other words, women joining the workforce enhances per capita income. This is also why xenophobia can be damaging: immigration does not actually suppress wages, as would be suggested by a simplistic econ 101 static supply and demand curve; in most cases it grows per capita GDP and has a similar income-enhancing effect as was seen from women joining the workforce. I do agree with some of your other points re: the difficulty in calculating improvement in quality of goods, and the basket substitution effect problem of calculating CPI. Accurately comparing wages from the 1970s to now is very difficult.

briandear 6y ago
> Such a view would suggest that any increase in labor hampers wages. Of course it does, if the supply of workers exceeds the demand, there would be a drop in wages. 10 people competing for 1 job is going to have a lower wage than 1 person competing for 1 job.
- mediaman 6y ago
  This logic would suggest that all increases in population (labor supply) in the history of humanity should be pushing labor down, because more people are competing for jobs. This is obviously, clearly wrong. Re-read what you responded to, especially the part about the longer term effect of increased consumption and GDP from higher participation rates. What you say is only true in a very short-term, micro view (labor supply in a small town over a matter of days, for example), not in the macro timeframe that is the context of this discussion. This is a well-studied area of economics and the field is not in consensus with your statement.
  - saurik 6y ago
    You can't conflate population and labor supply as the specific scenarios being discussed are cases where population was fixed but labor supply changed anyway: like, the reason increased population is different should be obvious... you also have more consumers (and yet, amazingly, the average wages stay the same while total output goes up, per the comment by someone else, as that is also comparing two incomparable things); but, if you do something where consumption is the same but competing labor force goes up, that allows you to isolate the two effects. (FWIW, I have no skin in any of the rest of this position, so please do make another argument against it: it is just that your statement that it is "obviously, clearly wrong" is itself "obviously, clearly wrong" as it is at best arguing against a straw man of what other people are saying.)
  - fxtentacle 6y ago
    Your fallacy here is to assume that the per-capita income growth is affecting the same people as the increased job competition. 2x the people might mean 2x the revenue for Amazon, but there is no guarantee that it'll trickle down. Maybe Amazon can, due to automation, satisfy the 2x in demand with only 1.9x in manual labor. In that case, work supply and consumption both grow by 2x. But salaries for the workes will go down while salaries for Amazon management go up. So the total salary average might remain the same, but it'll increase inequality nonetheless.
twoodfin 6y ago
In other words, women joining the workforce enhances per capita income. Absolutely, that's one of many reasons why it is a terrific trend that should be celebrated. My point was that there's every reason to believe an expanding work force in a static population would not grow average wages at the same rate as per capita GDP, which was the comparison made by OP. EDIT: A simple example to make this clearer: A city has 50,000 men and 50,000 women. Men are forbidden to work, and the women make an average of $50,000 each while producing an average of $80,000 worth of stuff, the surplus being retained by the greedy capitalists. Average wages are $50k, per capita GDP is $40k. The law against male employment is lifted, and the men jump immediately to equal the women. Given how much surplus the average worker is producing, there's no trouble giving them all jobs. Average wages "stagnate" at $50k, but per capita GDP is now $80k: The economy has doubled in size! /u/mediaman is right that in an economy that's suddenly 2X bigger, it would be shocking if the demand of all those newly paid men and newly even-more-wealthy capitalists didn't push wages up. But even without that happening, it's not clear that anything has gone horribly wrong: The women are still working for wages they considered fair, and men now are also able to choose how to put their labor to the use they consider the most rewarding.
AnthonyMouse 6y ago
> Unlike a short-term supply and demand curve, the economy operates on long-term shifts of aggregate labor supply and demand, in which an increase of aggregate supply of labor causes an aggregate increase in demand for labor (by modifying the overall demand curve of goods - consumption goes up) There are two problems here. The first is that not all goods have elastic supply and the second is that it's assuming the conclusion because you can't get an increase in demand if the initial decline in wages exceeds the increase in workforce participation. In the first case, for example, you go from a one income household to a two income household with no increase in housing supply and housing prices just increase to eat the difference. In the second case, if the increase in labor availability causes wages to decline from $60,000 to $30,000, there being twice as many people making half as much money doesn't lead to an increase in consumption. In theory it could even be worse than this because there is no requirement that the relationship be linear. Doubling labor availability could cause short-term wages to decline only from $60,000 to $55,000 or from $100,000 to $20,000. It depends on the supply and demand curves at the time. And all of this is industry specific, so how it affects you depends on the work you're qualified to do. Another issue in this context is that we're just completely disregarding the value of the household labor that had been occurring in the alternative. If someone goes from being a homemaker to working a $35,000/year job, but then as a result loses $35,000 to taxes, childcare, commuting expenses, restaurants, a housekeeper and so on, from a GDP perspective it gets counted as net increases all around even though it's really just breaking even. Or worse than breaking even after the effects of the two income trap increasing the cost of supply-inelastic products like housing.

briandear 6y ago

> Such a view would suggest that any increase in labor hampers wages. Of course it does, if the supply of workers exceeds the demand, there would be a drop in wages. 10 people competing for 1 job is going to have a lower wage than 1 person competing for 1 job.

mediaman 6y ago
This logic would suggest that all increases in population (labor supply) in the history of humanity should be pushing labor down, because more people are competing for jobs. This is obviously, clearly wrong. Re-read what you responded to, especially the part about the longer term effect of increased consumption and GDP from higher participation rates. What you say is only true in a very short-term, micro view (labor supply in a small town over a matter of days, for example), not in the macro timeframe that is the context of this discussion. This is a well-studied area of economics and the field is not in consensus with your statement.
- saurik 6y ago
  You can't conflate population and labor supply as the specific scenarios being discussed are cases where population was fixed but labor supply changed anyway: like, the reason increased population is different should be obvious... you also have more consumers (and yet, amazingly, the average wages stay the same while total output goes up, per the comment by someone else, as that is also comparing two incomparable things); but, if you do something where consumption is the same but competing labor force goes up, that allows you to isolate the two effects. (FWIW, I have no skin in any of the rest of this position, so please do make another argument against it: it is just that your statement that it is "obviously, clearly wrong" is itself "obviously, clearly wrong" as it is at best arguing against a straw man of what other people are saying.)
- fxtentacle 6y ago
  Your fallacy here is to assume that the per-capita income growth is affecting the same people as the increased job competition. 2x the people might mean 2x the revenue for Amazon, but there is no guarantee that it'll trickle down. Maybe Amazon can, due to automation, satisfy the 2x in demand with only 1.9x in manual labor. In that case, work supply and consumption both grow by 2x. But salaries for the workes will go down while salaries for Amazon management go up. So the total salary average might remain the same, but it'll increase inequality nonetheless.

twoodfin 6y ago

In other words, women joining the workforce enhances per capita income. Absolutely, that's one of many reasons why it is a terrific trend that should be celebrated. My point was that there's every reason to believe an expanding work force in a static population would not grow average wages at the same rate as per capita GDP, which was the comparison made by OP. EDIT: A simple example to make this clearer: A city has 50,000 men and 50,000 women. Men are forbidden to work, and the women make an average of $50,000 each while producing an average of $80,000 worth of stuff, the surplus being retained by the greedy capitalists. Average wages are $50k, per capita GDP is $40k. The law against male employment is lifted, and the men jump immediately to equal the women. Given how much surplus the average worker is producing, there's no trouble giving them all jobs. Average wages "stagnate" at $50k, but per capita GDP is now $80k: The economy has doubled in size! /u/mediaman is right that in an economy that's suddenly 2X bigger, it would be shocking if the demand of all those newly paid men and newly even-more-wealthy capitalists didn't push wages up. But even without that happening, it's not clear that anything has gone horribly wrong: The women are still working for wages they considered fair, and men now are also able to choose how to put their labor to the use they consider the most rewarding.

AnthonyMouse 6y ago

> Unlike a short-term supply and demand curve, the economy operates on long-term shifts of aggregate labor supply and demand, in which an increase of aggregate supply of labor causes an aggregate increase in demand for labor (by modifying the overall demand curve of goods - consumption goes up) There are two problems here. The first is that not all goods have elastic supply and the second is that it's assuming the conclusion because you can't get an increase in demand if the initial decline in wages exceeds the increase in workforce participation. In the first case, for example, you go from a one income household to a two income household with no increase in housing supply and housing prices just increase to eat the difference. In the second case, if the increase in labor availability causes wages to decline from $60,000 to $30,000, there being twice as many people making half as much money doesn't lead to an increase in consumption. In theory it could even be worse than this because there is no requirement that the relationship be linear. Doubling labor availability could cause short-term wages to decline only from $60,000 to $55,000 or from $100,000 to $20,000. It depends on the supply and demand curves at the time. And all of this is industry specific, so how it affects you depends on the work you're qualified to do. Another issue in this context is that we're just completely disregarding the value of the household labor that had been occurring in the alternative. If someone goes from being a homemaker to working a $35,000/year job, but then as a result loses $35,000 to taxes, childcare, commuting expenses, restaurants, a housekeeper and so on, from a GDP perspective it gets counted as net increases all around even though it's really just breaking even. Or worse than breaking even after the effects of the two income trap increasing the cost of supply-inelastic products like housing.