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If wages become a smaller portion of COGS, then there’s no contradiction. Eg if you buy equipment to make the process more efficient, you can amortize that equ
by mikeyouse 5y ago
If wages become a smaller portion of COGS, then there’s no contradiction. Eg if you buy equipment to make the process more efficient, you can amortize that equipment into COGS and the labor component can remain flat or even decrease even with higher wages for staff.
- simonh 5y agoOr your competitor can invest in equipment just the same and keep wages flat, and beat you on price. So nice sleight-of-hand but that's just an accountancy trick. Prices are still higher than they would otherwise be with stable wages.
- mikeyouse 5y agoPrice isn't determined by input costs but by supply and demand..
- simonh 5y agoThat's a very naive take on the economic realities. Supply is very often determined by input costs. If it costs more to provide a product or service, supply drops driving up prices, which in turn can lead to a drop in demand. Depending on market elasticity, one common way the market gets out of this negative feedback loop is by compromising on quality in order to hold down prices. You can see this in the current economy as restaurants and packaged foods suppliers in some sectors reduce the size of portions.