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What happens when minimum wage increases and businesses increase costs to meet the new cost of labor requirements? Wouldn’t that still lock out people from nece

by eh9 5y ago

What happens when minimum wage increases and businesses increase costs to meet the new cost of labor requirements? Wouldn’t that still lock out people from necessary products?

ClumsyPilot 5y ago
This doesn't compute at all! Wages are a fraction of the final product price - there are material costs, facilities, rent, etc. So even if we double the minimum wage, the cost of goods sold would only increase 30%-40%, so the folks depending on minimum wage have a major increase of their quality of life.
tonfreed 5y ago
To an extent, yes, but if inflation is high it's a false increase in value anyway.
TaylorAlexander 5y ago
I think it’s kind of a misunderstanding that this is how it works. Increasing wages can save companies money by improved productivity and reduced turnover. Moreover the price of the product is dictated by market demands and owners may simply have to take less profit in order to sell at market price. That is of course if increased productivity doesn’t completely cancel out the wage increase. Finally higher wages means people can afford higher prices to some extent.
- giantg2 5y ago
  True, that is the happy-path scenario. There are a few steps in there that depend on the circumstances. There are other scenarios don't go that way too.
  - TaylorAlexander 5y ago
    Certainly. But we similarly cannot say as a fact that this will raise prices.
jdavis703 5y ago
No. For example my Whole Foods is finally installing self-checkout registers. The labor shortage is so acute, that even the cashiers are complaining about how much extra work there is and how customers have bad attitudes for long lines.
MereInterest 5y ago
The premise of your question is not a certainty. Whether and how much of a price increase occurs depends on how much of a margin there is, and what price points are being targeted. If a widget costs $3 to make and sells at $10, then increasing the production costs to $5 may only change the profit, and not the final price. If a widget costs $9.50 to make and sells for $10, then the same $2 increase in per-unit production price would increase the price. Which scenario we're in depends on the industry, but overall I don't trust the rhetoric of costs always being passed down to society as a whole, because it works to undermine any labor gains.
h0l0cube 5y ago
> businesses increase costs to meet the new cost of labor requirements These strikes, more often than not, are happening at larger firms (e.g., incumbent monopolies like John Deere, Kelloggs, Nabisco, etc.) with much larger profit margins. They would sooner wear the costs and pay lower dividends than hurt their competitive margin. But I do take your point that small-to-medium sized business take the brunt of top-down government policy changes like a minimum wage increase, and this can hurt competition.
gaze 5y ago
You completely misunderstand how pricing works.
- RhodesianHunter 5y ago
  This sort of comment, even if true, benefits no one and is better left untyped.
  - deleted 5y ago
    [deleted]
runarberg 5y ago
I think the sort answer is: “We don’t know”. We have tonnes of history to go by here. Labor costs have increased and decreased millions of times all over the world since the industrial revolution. If there was a universal pattern such as: Increased labor costs always increase product prices then surely we would know about it by now. However we don’t have such a pattern. History has shown us that it is not so simple. Workers dissatisfaction actually costs workers productivity so a low payed worker might actually yield worse prices then a high payed worker. Another thing to consider is that a lot of the companies which have high worker dissatisfaction and high chance of strikes, are multi-million dollar companies with highly payed CEOs and big shareholders that sometimes pay them self dividends and may have an offshore account for tax hiding purposes. Not only is this super frustrating for the workers of these companies, but consumer prices suffer as well. After all they could make the product cheaper to produce if less money was being diverted to the rich.
- WalterBright 5y ago
  > After all they could make the product cheaper to produce if less money was being diverted to the rich. Owning shares in the company means you'll get a share of the profits and dividends. Anyone can buy shares. Many companies go further and provide employee stock purchase plans and stock options. Microsoft created something like 10,000 millionaires in the Seattle area in the 90's. Amazon has surely done something similar. Microsoft and Amazon millionaires abound around here.
  - andrekandre 5y ago
    > Many companies go further and provide employee stock purchase plans and stock options. those are all really great, but what i really want are the shares with voting rights (^_-)
    - WalterBright 5y ago
      Shares come with voting rights. Stock options don't until you exercise them, then you get voting rights.

by eh9 5y ago

What happens when minimum wage increases and businesses increase costs to meet the new cost of labor requirements? Wouldn’t that still lock out people from necessary products?

ClumsyPilot 5y ago

This doesn't compute at all! Wages are a fraction of the final product price - there are material costs, facilities, rent, etc. So even if we double the minimum wage, the cost of goods sold would only increase 30%-40%, so the folks depending on minimum wage have a major increase of their quality of life.

tonfreed 5y ago

To an extent, yes, but if inflation is high it's a false increase in value anyway.

TaylorAlexander 5y ago

I think it’s kind of a misunderstanding that this is how it works. Increasing wages can save companies money by improved productivity and reduced turnover. Moreover the price of the product is dictated by market demands and owners may simply have to take less profit in order to sell at market price. That is of course if increased productivity doesn’t completely cancel out the wage increase. Finally higher wages means people can afford higher prices to some extent.

giantg2 5y ago
True, that is the happy-path scenario. There are a few steps in there that depend on the circumstances. There are other scenarios don't go that way too.
- TaylorAlexander 5y ago
  Certainly. But we similarly cannot say as a fact that this will raise prices.

jdavis703 5y ago

No. For example my Whole Foods is finally installing self-checkout registers. The labor shortage is so acute, that even the cashiers are complaining about how much extra work there is and how customers have bad attitudes for long lines.

MereInterest 5y ago

The premise of your question is not a certainty. Whether and how much of a price increase occurs depends on how much of a margin there is, and what price points are being targeted. If a widget costs $3 to make and sells at $10, then increasing the production costs to $5 may only change the profit, and not the final price. If a widget costs $9.50 to make and sells for $10, then the same $2 increase in per-unit production price would increase the price. Which scenario we're in depends on the industry, but overall I don't trust the rhetoric of costs always being passed down to society as a whole, because it works to undermine any labor gains.

h0l0cube 5y ago

> businesses increase costs to meet the new cost of labor requirements These strikes, more often than not, are happening at larger firms (e.g., incumbent monopolies like John Deere, Kelloggs, Nabisco, etc.) with much larger profit margins. They would sooner wear the costs and pay lower dividends than hurt their competitive margin. But I do take your point that small-to-medium sized business take the brunt of top-down government policy changes like a minimum wage increase, and this can hurt competition.

gaze 5y ago

You completely misunderstand how pricing works.

RhodesianHunter 5y ago
This sort of comment, even if true, benefits no one and is better left untyped.
- deleted 5y ago
  [deleted]

runarberg 5y ago

I think the sort answer is: “We don’t know”. We have tonnes of history to go by here. Labor costs have increased and decreased millions of times all over the world since the industrial revolution. If there was a universal pattern such as: Increased labor costs always increase product prices then surely we would know about it by now. However we don’t have such a pattern. History has shown us that it is not so simple. Workers dissatisfaction actually costs workers productivity so a low payed worker might actually yield worse prices then a high payed worker. Another thing to consider is that a lot of the companies which have high worker dissatisfaction and high chance of strikes, are multi-million dollar companies with highly payed CEOs and big shareholders that sometimes pay them self dividends and may have an offshore account for tax hiding purposes. Not only is this super frustrating for the workers of these companies, but consumer prices suffer as well. After all they could make the product cheaper to produce if less money was being diverted to the rich.

WalterBright 5y ago
> After all they could make the product cheaper to produce if less money was being diverted to the rich. Owning shares in the company means you'll get a share of the profits and dividends. Anyone can buy shares. Many companies go further and provide employee stock purchase plans and stock options. Microsoft created something like 10,000 millionaires in the Seattle area in the 90's. Amazon has surely done something similar. Microsoft and Amazon millionaires abound around here.
- andrekandre 5y ago
  > Many companies go further and provide employee stock purchase plans and stock options. those are all really great, but what i really want are the shares with voting rights (^_-)
  - WalterBright 5y ago
    Shares come with voting rights. Stock options don't until you exercise them, then you get voting rights.