5 ms·

When productivity increases, you have 2 choices: 1. increase your wages. pay your suppliers more. 2. decrease your prices. It doesn't really matter which you

When productivity increases, you have 2 choices: 1. increase your wages. pay your suppliers more. 2. decrease your prices. It doesn't really matter which you do. Do we want higher wages or lower prices? You can't do both. Does it even matter? The net effect is the same. Who cares that we've universally chosen #2? Note: I'm assuming there's modest competition. Monopolies have a 3rd option: more profit.

miduil 5y ago
> [...] their pay has flatlined, or even declined when factoring in inflation [...] Neither #1 NOR #2 are happening, what is instead happening is #3 > [...] increased inequality with most gains going to people at the top [...]
- randyrand 5y ago
  Even if that is true, productivity is not the cause there. Productivity increases our wages because it naturally decreases prices. It's already account for. Edit: to those that don't believe it, what do you think would happen if suddenly 3x more of every product popped into existence?
alice-i-cecile 5y ago
The critique is that much of the investor class has chosen: 3. Pay yourself more.
pydry 5y ago
Profits are also a thing. Business generally prefers to do neither 1 nor 2.
ashtonkem 5y ago
You forgot one option. 3. Take less profit.
peer2pay 5y ago
Or you could do either of: 3. massive bonuses for execs and wage increases for white-collar workers 4. stock buybacks and dividends to directly distribute profits to shareholders Let’s not pretend that both of these don’t happen at the cost of regular employees.
- megaman821 5y ago
  Even if this were true, it provides little in the way of an explanation. Why do 10s of thousands of companies across hundreds of industries pay their regular employees a small fraction of their worth? What is stopping someone else from coming along and paying them a larger fraction of their worth?
  - chewzerita 5y ago
    > Why do companies pay their regular employees a small fraction of their worth? A dead German economist might have an answer for you ;)
    - megaman821 5y ago
      I am not sure Marx has much to say on why a person earning $100/hr for a company and being paid $10/hr wouldn't have his earnings potential stolen by another company willing to pay him $20/hr. $90/hr of profit is great but $80/hr in my pocket is better.
eugeniub 5y ago
Yes, indeed we have seen decreased prices in housing, healthcare, education, etc in the last 40 years.
- randyrand 5y ago
  You bring up a good point, but the reasons for that are not directly related to productivity. 2 big ones: 1. money supply. Average wage and population have both increased. How can that be possible if the total amount of money in the economy is fixed? Well it's not. Increases in money supply are slightly more than productivity growth rate in order to prevent deflation, and they err on the side inflation. There's literally more money in the economy than ever before. 2. monopolies. Healthcare & education & housing are not competitive markets. You can't invent more land. Healthcare is a basketcase. And schools are in effect a luxury good where exclusivity is the main product. You combine #1 and #2 and you get what you expect. The solution to this is not to increase minimum wage with productivity. That doesn't make sense. IMO minimum wage should be pegged at some standard of living in a 50th percentile cost of living suburb.
dangus 5y ago
The reason why #2 doesn't have the same effect as #1 is scale. Wealthy people are not affected by prices in the same way as average people. I hypothesize that being able to buy more with the same income rather than being given a higher income helps the wealthy more. Let's take a practical example: A banana now costs 50 cents. It would have to cost $2 if we paid for higher labor costs, for that $20+ minimum wage. But if you're upper-middle class or above, or way above, it doesn't really matter if that banana costs 50 cents or $2. Heck, for some people, it wouldn't really matter if it cost $50 or $100 or even $1,000 if you're Jeff Bezos. There are only so many bananas you could possibly want. In this way, I think that option 1 would be more beneficial for the common person. Sure, they'd have to pay for a $2 banana, but they'd be making a more comfortable salary and they still only want one banana. Meanwhile, Moneybags Factory Owner would have to dispense their wealth to labor instead of hoarding it in capital. I'd also argue that we don't do #2 "because of competition," instead that it was an intentional choice not to tie minimum wage to inflation and to keep it at rock-bottom levels. That is corporations-write-the-laws policy. If the minimum wage were raised there would absolutely still be competition and companies would still be trying to make productivity gains from option #1.
- ajsnigrutin 5y ago
  ...or they'd just raise the price of a banana to $4, to keep relative profits the same, people would earn more than previously, but everything would be more expensive. Say what you want, we do buy and own a lot more stuff than we did in history. The only unfair thing here is, why does amazon pay (relatively, percentually) less tax than local banana stand.
  - dangus 5y ago
    > ...or they'd just raise the price of a banana to $4, to keep relative profits the same I'd say for many products they can't actually do that because there's only so much demand. Also, because middle and higher earners wouldn't be getting the same kind of raises that the minimum wage folks would get if the minimum wage were raised. If you're above minimum wage, you're essentially being paid at a market equilibrium rate: an intersection of supply and demand. But if you're at minimum wage, you're at "the company would pay you less if they were legally allowed to" territory. My point is that "everything would be more expensive" would actually be a net benefit to the lowest earners. Labor is very nearly never 100% of the purchase price of a product or service. So, if you increase your labor cost by 100%, that doesn't mean the product's price increased by 100%, because labor is only one component of a product's price. It's the same math that makes living in HCOL areas worth the expense (e.g.: increase your expenses by 50% and your wage by 50%. As long as you are paying less than 100% of your wage into your expenses that's a net gain). McDonald's in Denmark is a great example. Their employees make well over $20 an hour and have 6 weeks vacation. Big Macs in Denmark don't cost double the price, but the workers are paid just about double depending on which region in the US you compare to.
handrous 5y ago
> You can't do both. I'm being entirely serious: I don't see why not. > It doesn't really matter which you do. It really, really matters if productivity increases are uneven.
agitator 5y ago
3. Collect more profit
teawrecks 5y ago
> You can't do both. You can definitely do a bit of both. The sum just can't net you less than if you had done neither. Which is why many corporations just opt for neither.

miduil 5y ago

> [...] their pay has flatlined, or even declined when factoring in inflation [...] Neither #1 NOR #2 are happening, what is instead happening is #3 > [...] increased inequality with most gains going to people at the top [...]

randyrand 5y ago
Even if that is true, productivity is not the cause there. Productivity increases our wages because it naturally decreases prices. It's already account for. Edit: to those that don't believe it, what do you think would happen if suddenly 3x more of every product popped into existence?

alice-i-cecile 5y ago

The critique is that much of the investor class has chosen: 3. Pay yourself more.

pydry 5y ago

Profits are also a thing. Business generally prefers to do neither 1 nor 2.

ashtonkem 5y ago

You forgot one option. 3. Take less profit.

peer2pay 5y ago

Or you could do either of: 3. massive bonuses for execs and wage increases for white-collar workers 4. stock buybacks and dividends to directly distribute profits to shareholders Let’s not pretend that both of these don’t happen at the cost of regular employees.

megaman821 5y ago
Even if this were true, it provides little in the way of an explanation. Why do 10s of thousands of companies across hundreds of industries pay their regular employees a small fraction of their worth? What is stopping someone else from coming along and paying them a larger fraction of their worth?
- chewzerita 5y ago
  > Why do companies pay their regular employees a small fraction of their worth? A dead German economist might have an answer for you ;)
  - megaman821 5y ago
    I am not sure Marx has much to say on why a person earning $100/hr for a company and being paid $10/hr wouldn't have his earnings potential stolen by another company willing to pay him $20/hr. $90/hr of profit is great but $80/hr in my pocket is better.

eugeniub 5y ago

Yes, indeed we have seen decreased prices in housing, healthcare, education, etc in the last 40 years.

randyrand 5y ago
You bring up a good point, but the reasons for that are not directly related to productivity. 2 big ones: 1. money supply. Average wage and population have both increased. How can that be possible if the total amount of money in the economy is fixed? Well it's not. Increases in money supply are slightly more than productivity growth rate in order to prevent deflation, and they err on the side inflation. There's literally more money in the economy than ever before. 2. monopolies. Healthcare & education & housing are not competitive markets. You can't invent more land. Healthcare is a basketcase. And schools are in effect a luxury good where exclusivity is the main product. You combine #1 and #2 and you get what you expect. The solution to this is not to increase minimum wage with productivity. That doesn't make sense. IMO minimum wage should be pegged at some standard of living in a 50th percentile cost of living suburb.

dangus 5y ago

The reason why #2 doesn't have the same effect as #1 is scale. Wealthy people are not affected by prices in the same way as average people. I hypothesize that being able to buy more with the same income rather than being given a higher income helps the wealthy more. Let's take a practical example: A banana now costs 50 cents. It would have to cost $2 if we paid for higher labor costs, for that $20+ minimum wage. But if you're upper-middle class or above, or way above, it doesn't really matter if that banana costs 50 cents or $2. Heck, for some people, it wouldn't really matter if it cost $50 or $100 or even $1,000 if you're Jeff Bezos. There are only so many bananas you could possibly want. In this way, I think that option 1 would be more beneficial for the common person. Sure, they'd have to pay for a $2 banana, but they'd be making a more comfortable salary and they still only want one banana. Meanwhile, Moneybags Factory Owner would have to dispense their wealth to labor instead of hoarding it in capital. I'd also argue that we don't do #2 "because of competition," instead that it was an intentional choice not to tie minimum wage to inflation and to keep it at rock-bottom levels. That is corporations-write-the-laws policy. If the minimum wage were raised there would absolutely still be competition and companies would still be trying to make productivity gains from option #1.

ajsnigrutin 5y ago
...or they'd just raise the price of a banana to $4, to keep relative profits the same, people would earn more than previously, but everything would be more expensive. Say what you want, we do buy and own a lot more stuff than we did in history. The only unfair thing here is, why does amazon pay (relatively, percentually) less tax than local banana stand.
- dangus 5y ago
  > ...or they'd just raise the price of a banana to $4, to keep relative profits the same I'd say for many products they can't actually do that because there's only so much demand. Also, because middle and higher earners wouldn't be getting the same kind of raises that the minimum wage folks would get if the minimum wage were raised. If you're above minimum wage, you're essentially being paid at a market equilibrium rate: an intersection of supply and demand. But if you're at minimum wage, you're at "the company would pay you less if they were legally allowed to" territory. My point is that "everything would be more expensive" would actually be a net benefit to the lowest earners. Labor is very nearly never 100% of the purchase price of a product or service. So, if you increase your labor cost by 100%, that doesn't mean the product's price increased by 100%, because labor is only one component of a product's price. It's the same math that makes living in HCOL areas worth the expense (e.g.: increase your expenses by 50% and your wage by 50%. As long as you are paying less than 100% of your wage into your expenses that's a net gain). McDonald's in Denmark is a great example. Their employees make well over $20 an hour and have 6 weeks vacation. Big Macs in Denmark don't cost double the price, but the workers are paid just about double depending on which region in the US you compare to.

handrous 5y ago

> You can't do both. I'm being entirely serious: I don't see why not. > It doesn't really matter which you do. It really, really matters if productivity increases are uneven.

agitator 5y ago

3. Collect more profit

teawrecks 5y ago

> You can't do both. You can definitely do a bit of both. The sum just can't net you less than if you had done neither. Which is why many corporations just opt for neither.