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>To anyone reared on the political orthodoxy of the moment... "higher wages cause higher unemployment," This is not political orthodoxy at all this is economic

• jameshart 12y ago
  or does lower demand raise prices? And you focus on the fact that demand falls but ignore that supply increases. All economic 'law' says is that price and quantity for supply and demand are correlated - all other things being equal. But when other things change, they move the supply and demand curves and the equilibrium price will move. It's possible to have things change in the marketplace which cause the demand or supply curves to shift in a way which increases both the price of labor AND the quantity of labor exchanged in a market at the same time - meaning that wages would go up and unemployment down. The open question for politicians is whether it's possible for them to enact policies which cause that. And the open question for economists is whether that would actually be a good thing.
  • ancap 12y ago
    >or does lower demand raise prices? No. Draw a supply and demand curve. Shift the demand curve to the left (representing lower demand). Clearly the lower demand causes lower prices. >But when other things change, they move the supply and demand curves and the equilibrium price will move. And that is exactly the problem. Raising the minimum wage does not cause "other things [to] change." It is changing a single variable. With just a rudimentary understanding of economics the result is lower demand for labor (unemployment).
    • jre 12y ago
      > And that is exactly the problem. Raising the minimum wage does not cause "other things [to] change." It is changing a single variable. It will increase the income of people paid minimum wage, allowing them to buy more things, therefore increasing demand for some products.
    • ssmoot 12y ago
      It's a weird assumption you seem to be making that businesses (especially small businesses paying minimum wage) are keeping more employees around as they actually need. Maybe you've never worked for minimum wage. When I was pushing carts around at a grocery store, or delivering pizzas, and later leading shifts, labor costs are the number one concern at all times. If it gets slow and you don't need five drivers, you tell three of them to go home. Period. They aren't (anywhere I've ever experienced) unnecessarily kept on the clock. That's the reality of a minimum wage job. Increasing the minimum wage isn't going to free up the shift supervisors to be able to cut back further. They won't have a choice. So instead of a $2,000 nightly close for that pizza joint, it's going to be $1,800. And the franchisee pockets a bit less. That's all that's going to happen. They'll still attempt to open up as many profitable franchises as they can. Close down the unprofitable ones just as aggressively, and still count every hour spent on labor.
    • ManFromUranus 12y ago
      It's pointless to create more jobs by lowering the minimum wage (or eliminating it) if no one could possibly live off of the wages of the jobs this created. So the answer is to only have jobs that could support someone without government having to feed them (minimum wage), this in my mind eliminates jobs that really shouldn't exist, and stops employers from having government subsidize their workers.
      • pdonis 12y ago
        It's pointless to create more jobs by lowering the minimum wage (or eliminating it) if no one could possibly live off of the wages of the jobs this created. Not everybody who has a job has to live on the wages. When I worked temp jobs while I was in school, I didn't need the money to live on; ROTC was paying my tuition and my parents were paying my room & board. My wages were just extra spending money. The big problem with raising the minimum wage across the board is that it doesn't differentiate between people who have to live on the wages they earn and people who don't, like me when I was in school. If there were an exception for people who were dependents on someone else's tax return, for example, I think it would make a big difference.
    • ticviking 12y ago
      Consider for a moment that the poor spend every dollar they make(and often every dollar they can borrow as well). If we raise their incomes by N. Some factor of N dollars of demand is created in the economy by this action as they spend their increased income. Depending on the state in the rest of the economy that results in a net shift of the demand curve one way or the other. If that factor is < 1, perhaps layoffs, or increased saving, we have lower demand. But if that factor is > 1; People who spend every dollar they make are suddenly spending a few more dollars at their local WalMart every month, and so they need a few more hours of cashier each month to meet the demand, who probably spends all they make from those extra hours(in addition to the hourly raise for hours they were possibly already working). Then we will find that overall more demand has been created. Demand side arguments being made today are doing some simple reasoning and realizing that 'job creators' cannot demand labor, unless the products of that labor are demanded. We could raise the demand for the products of labor by making more income available to people who will spend it immediately. What if we raise the minimum wage(where almost all $ is spent immediately) to raise that demand at the lowest level? They're betting that the factor of created demand is near 1, and probably greater than 1. Is the idea really that complicated?
    • jameshart 12y ago
      Who said anything about minimum wage? The contention is just that "higher wages cause unemployment", which you characterized as "higher prices cause lower demand". A supply/demand curve diagram says nothing about what happens if you move the price, it says what happens to the price if supply or demand move. To argue that "higher wages cause unemployment" you have to find a way to move the equilibrium point for labor up the P axis and to the left on the Q axis - which you do by moving the supply curve to the left and leaving the demand curve still. So higher wages and unemployment are a consequence of decreased labor supply, not of higher wages. Raising the minimum wage changes the shape of the supply curve, and yes, if the demand curve crosses the supply curve at the minimum wage line, then raising it will decrease the amount of labor exchanged - increasing unemployment. But higher average wages (forget about minimum wage) increase consumption which increases demand across the board, which decreases unemployment, and... increases wages. This is what happens during an economic boom.
• bitJericho 12y ago
  There are many cases where higher prices raise demand.
• ssmoot 12y ago
  Yes, but better wages don't necessarily equate to higher prices. During the domestic auto bankruptcies it was a bit grating to hear people ramble on about the "high" wages of union workers being at-fault for the domestic's inability to compete. Considering domestic vehicles are already generally less expensive than imports, just how much more less expensive do they need to be to get people to buy them? If union labor represents $1,000 of every Malibu sold, and union wages were cut in half across the board, and that savings was passed onto the consumer with a $500 lower MSRP, would that move significantly more vehicles? I'd like to think common sense would say "of course not". The price is already (generally) very competitive. It's like basic reasoning skills go out the window in these discussions. To make the argument higher blue-collar wages are a problem, first you (you'd think obviously) need to quantify the impact of those wages. Is it 2% of the cost? 5%? 10%? 20%? Would killing the retirement benefit, and cutting the base salary in half drop that ~$60 total compensation package to $35? If labor compensation is 10% of the cost of a $30,000 vehicle, you can now theoretically (if the savings aren't simply reinvested elsewhere, or disappear in management bonuses) drop the price of the car to $28,750. All of those "savings passed onto the consumer" assumptions seem real unlikely to me. But even then, is that $1,250 savings going to move more product? Probably not. While there are always exceptions, most people who aren't already considering a domestic vehicle aren't making their decision on price alone. Price isn't even the primary concern for someone who purchases a Camry over a Malibu (obviously; and there's nothing wrong with that). So yeah... I don't think increased wages for the average worker have a whole heck of a lot to do with higher unemployment. And there are a lot of business advantages to being an employer who takes care of their people IME. Especially when applied to software development (you'd think here of all places that would be glaringly obvious). I think your comment is needlessly snarky. You could as easily suggest that "Anyone who understands basic economics knows that higher wages increase purchasing power" (in the short-term at least). Furthermore that the people in the lowest pay brackets are the ones most likely to spend it in ways that benefit the overall economy. Which is why (as distasteful as feels sometimes) extending unemployment insurance is one of the most economically beneficial and stimulating things you can do in times of recession. Those dollars are going to get spent, and they'll get spent where they'll be most effective at creating new jobs.
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• stephencanon 12y ago
  If you actually cared about understanding supply and demand you would know: “supply and demand" is really a theorem about microeconomics and you’re on shaky ground when you start trying to apply it to macro phenomena. People do it all the time, but that doesn’t make it valid, because… “supply and demand” requires that everything else in the market is held constant; you can’t make that assumption for macro phenomena, and you especially can’t do so when discussing wages. “supply and demand” as commonly quoted is a theorem that depends on certain assumptions about the demand curves of the goods in question, and it’s at least not obvious that the demand curves for labor satisfy those assumptions. Looking at your other comments, you don’t really seem to be interested in understanding anything, however, so I’ll let you resume your regularly scheduled trolling now.
  • ancap 12y ago
    The fact that minimum wage increases unemployment is clearly demonstrated at a micro economic level. Reading the link I previously posted an actual case study of small business owners who, in their own microeconomic sphere, will have to fire workers due to increases in minimum wage. >Looking at your other comments, you don’t really seem to be interested in understanding anything, however, so I’ll let you resume your regularly scheduled trolling now. In other words, "My logic cannot counter, so I will resort to insults."
    • lhc- 12y ago
      You can't take one owner saying he will fire an employee to mean that unemployment as a whole will increase. What about another owner who suggests he will hire more people, since all his customers now have more money to spend and will increase his business? You're demonstrating exactly why microeconomics != macroeconomics: you can't just eliminate the vast number of other factors involved when trying to extrapolate a micro result to the macro sphere.
    • lukeschlather 12y ago
      The link is self-reported statements of people who have a vested interest in suppressing wages. The fundamental, persistent flaw in your argument is that you're not distinguishing between observed effects of changes to the minimum wage vs. what people believe about changes to the minimum wage. You're not even bothering to acknowledge the distinction. There's also the assumption implicit in your argument that reduced employment is bad, which is also plainly wrong. It's better for society to have 400 hours of labor at $15/hour than 500 hours of labor at $14/hour. Everything we know about productivity says reduced hours are good, and we should be structuring wages to penalize companies for overworking employees. Not just because it's better for employees, but because it's better for business.
• clavalle 12y ago
  This simplistic brand of economics is killing us. It is infecting otherwise intelligent people and causing wholesale policy mistakes that is hurting everyone. It is the equivalent of taking a physiology course and diagnosing your friends' medical conditions -- it is not that simple. There is a whole system that needs to be taken into account and simple models, while useful in a limited sense, do not even come close to creating an accurate picture of reality.
• sharemywin 12y ago
  But how much will demand go up for products and services in the area? How much of the owners profits goes to taxes and investments that will now get spent on things like restaurants.