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Firms in a competitive market are price takers. None of them individually can raise prices. But an increase of the minimum wage increase affects all of them t

by michael1999 6y ago

Firms in a competitive market are price takers. None of them individually can raise prices. But an increase of the minimum wage increase affects all of them together, and will cause a new equilibrium at higher prices.

fighterpilot 6y ago
That assumes no substitutes, but in reality this will increase the relative cost of restaurants compared to home cooking which will reduce demand for take out.
- dmitriid 6y ago
  Ah yeah. You can always look at how Europe is empty and has very few, if any, restaurants with their minimum wages and healthcare. Oh wait...
  - fighterpilot 6y ago
    I said that it would reduce demand, not that it would eliminate it.
    - dmitriid 6y ago
      Has it reduced demand in Europe? In general. Americans regularly have deep-rooted fears about giving fellow humans a chance at a decent life. Are any of those fears substantiated?
      - fighterpilot 6y ago
        Economic theory says yes. If prices of A go up and B is a close substitute, some people will shift from A to B. I doubt anyone has studied that rather specific question empirically, though, and even if they had it's not an easy question to study. So theory and common sense is our best bet when it comes to forming expectations here. I'm sure there are empirical studies about how demand shifts from A to B for other examples of substitute goods, though. Maybe start there?
        dmitriid 6y ago
        > some people will shift from A to B. 1. Is this number at all significant? 2. Should theory prevent working Americans from having a decent life given that empirically restaurants and cafes are plentiful in Europe and are filled to the brim with customers?
        fighterpilot 6y ago
        1. Perhaps. Difficult to know the extent exactly. My guess would be yes, given theory, but we'd need a natural experiment to find that out. 2. This particular thing isn't really an argument against minimum wage, although I personally am not automatically in support of it for other reasons. I can see an argument that it creates poverty by making unskilled workers unable to compete with lower skilled labor overseas for manufacturing jobs. Effectively it's a ban on their ability to work (if their value add is less than the minimum wage) and make a living and can possibly go some way towards explaining the black youth unemployment rate. This robs them of their ability to get a foothold in their economy from which they can stabilize and level up. Why would a manufacturer keep their operations in the US if they have to pay minimum wage? Of course they're going to be inclined to move overseas where it's cheaper, especially if it's a low margin business. It's also rather intrusive and authoritarian, if two people want to get together and exchange one hour of X for $Y then I don't see that as any of your business, but this is more a point of personal values and it's more productive to focus on the utilitarian part of the argument.
        dmitriid 6y ago
        > This robs them of their ability to get a foothold in their economy from which they can stabilize and level up. You're kidding, right? You're sayig that minimum wage robs people of ability to get a foothold in the economy? Please enlighten me how "getting a foothold" works for people that have to work several jobs just to barely keep afloat? > It's also rather intrusive and authoritarian, if two people want to get together and exchange one hour of X for $Y then I don't see that as any of your business What about if a bunch of people come together and agree this is a good thing? Oh, wait, that's called a government, and laws, and common human decency. > this is more a point of personal values and it's more productive to focus on the utilitarian part of the argument. Indeed. Because your personal argument basically devolves into: if you want to keep slaves or indentured servants, who am I to keep you from doing that?
  - idrios 6y ago
    You could have made this same point without being antagonistic about it. The parent's comment was valid and not in disagreement with yours
  - conanbatt 6y ago
    Or unemployment..oh wait...
    - dmitriid 6y ago
      Unemployment varies from country to country. https://www.statista.com/statistics/268830/unemployment-rate-in-eu-countries/ https://www.statista.com/statistics/268830/unemployment-rate... 5.8% to 16% Comparable to the U.S. https://www.statista.com/statistics/273909/seasonally-adjusted-monthly-unemployment-rate-in-the-us/ https://www.statista.com/statistics/273909/seasonally-adjust... 4.4% to 14.7% Something tells me though that you really don't want to be unemployed in the US... And that a huge number of those jobs in the US are indentured servitude in all but name.
      - conanbatt 5y ago
        Spain has a youth unemployment of 30% in 2019, vs 9% in the US. Spain is worst case, but also one of the EU founding countries. Even sweden has 20%+ of youth unemployment. It is not the land of opportunity!
- michael1999 6y ago
  Sure. But labour is only a third of costs. And given the relative bargaining power of landlords, owners, and labour, the flow through to retail price might be less than you think.
  - deleted 6y ago
    [deleted]
anonuser123456 6y ago
This assumes demand is inelastic to price.

fighterpilot 6y ago

That assumes no substitutes, but in reality this will increase the relative cost of restaurants compared to home cooking which will reduce demand for take out.

dmitriid 6y ago
Ah yeah. You can always look at how Europe is empty and has very few, if any, restaurants with their minimum wages and healthcare. Oh wait...
- fighterpilot 6y ago
  I said that it would reduce demand, not that it would eliminate it.
  - dmitriid 6y ago
    Has it reduced demand in Europe? In general. Americans regularly have deep-rooted fears about giving fellow humans a chance at a decent life. Are any of those fears substantiated?
    - fighterpilot 6y ago
      Economic theory says yes. If prices of A go up and B is a close substitute, some people will shift from A to B. I doubt anyone has studied that rather specific question empirically, though, and even if they had it's not an easy question to study. So theory and common sense is our best bet when it comes to forming expectations here. I'm sure there are empirical studies about how demand shifts from A to B for other examples of substitute goods, though. Maybe start there?
      - dmitriid 6y ago
        > some people will shift from A to B. 1. Is this number at all significant? 2. Should theory prevent working Americans from having a decent life given that empirically restaurants and cafes are plentiful in Europe and are filled to the brim with customers?
        fighterpilot 6y ago
        1. Perhaps. Difficult to know the extent exactly. My guess would be yes, given theory, but we'd need a natural experiment to find that out. 2. This particular thing isn't really an argument against minimum wage, although I personally am not automatically in support of it for other reasons. I can see an argument that it creates poverty by making unskilled workers unable to compete with lower skilled labor overseas for manufacturing jobs. Effectively it's a ban on their ability to work (if their value add is less than the minimum wage) and make a living and can possibly go some way towards explaining the black youth unemployment rate. This robs them of their ability to get a foothold in their economy from which they can stabilize and level up. Why would a manufacturer keep their operations in the US if they have to pay minimum wage? Of course they're going to be inclined to move overseas where it's cheaper, especially if it's a low margin business. It's also rather intrusive and authoritarian, if two people want to get together and exchange one hour of X for $Y then I don't see that as any of your business, but this is more a point of personal values and it's more productive to focus on the utilitarian part of the argument.
        dmitriid 6y ago
        > This robs them of their ability to get a foothold in their economy from which they can stabilize and level up. You're kidding, right? You're sayig that minimum wage robs people of ability to get a foothold in the economy? Please enlighten me how "getting a foothold" works for people that have to work several jobs just to barely keep afloat? > It's also rather intrusive and authoritarian, if two people want to get together and exchange one hour of X for $Y then I don't see that as any of your business What about if a bunch of people come together and agree this is a good thing? Oh, wait, that's called a government, and laws, and common human decency. > this is more a point of personal values and it's more productive to focus on the utilitarian part of the argument. Indeed. Because your personal argument basically devolves into: if you want to keep slaves or indentured servants, who am I to keep you from doing that?
- idrios 6y ago
  You could have made this same point without being antagonistic about it. The parent's comment was valid and not in disagreement with yours
- conanbatt 6y ago
  Or unemployment..oh wait...
  - dmitriid 6y ago
    Unemployment varies from country to country. https://www.statista.com/statistics/268830/unemployment-rate-in-eu-countries/ https://www.statista.com/statistics/268830/unemployment-rate... 5.8% to 16% Comparable to the U.S. https://www.statista.com/statistics/273909/seasonally-adjusted-monthly-unemployment-rate-in-the-us/ https://www.statista.com/statistics/273909/seasonally-adjust... 4.4% to 14.7% Something tells me though that you really don't want to be unemployed in the US... And that a huge number of those jobs in the US are indentured servitude in all but name.
    - conanbatt 5y ago
      Spain has a youth unemployment of 30% in 2019, vs 9% in the US. Spain is worst case, but also one of the EU founding countries. Even sweden has 20%+ of youth unemployment. It is not the land of opportunity!
michael1999 6y ago
Sure. But labour is only a third of costs. And given the relative bargaining power of landlords, owners, and labour, the flow through to retail price might be less than you think.
- deleted 6y ago
  [deleted]

anonuser123456 6y ago

This assumes demand is inelastic to price.