4 ms·
Most of that I didn't say, but it's certainly true that wage increases are commonly absorbed by reducing profits (or investment) rather than closing the busines
by mmooss 8mo ago
Most of that I didn't say, but it's certainly true that wage increases are commonly absorbed by reducing profits (or investment) rather than closing the business (!) or increasing prices.
Closing a business because wages or any cost go up a bit would be absurd. That is way overstated. Of course there is some undefined point where costs are too high to sustain, but closing and opening businesses is not trading stocks on Robinhood. There are large transactional costs, including to your reputation - investors, creditors, co-workers, business partners, employees, who have invested their precious time, money, and careers and reputations with you, would be very angry (probably they would replace you as CEO and keep going). And how will you pay your mortgage next month?
> the amount of profit can be increased or decreased independently of any other factors
It indeed can be decreased that way, except that the money has to go somewhere - retained earnings (savings), new gardens in the courtyard, even wage increases.
- mhb 8mo ago> Closing a business because wages or any cost go up a bit would be absurd. It is not absurd at all. This is economics thinking. There are always businesses on the margin of staying in business or going out of business. You don't base an argument on the extremes. You look at the marginal cases. It's only absurd in the scenario you're imagining in which every business is somehow able to make so much profit that it's still worthwhile for them to reduce profits and increase wages. But there are other businesses who are willing to decrease profits to compete with that business. This is the precise mechanism of how profit is constrained and how consumers benefit from competition.
- mmooss 8mo agoI can't tell you more than I have. Good luck my friend!