Labor Woes Are A Simple Function Of Supply & Demand
Much has been bantered about in our vanilla Congress about the recent increase in minimum wage. Minimum wage is merely a bunch of cowdung, put in a box, and wrapped in pretty Christmas paper with a bow. Though the package is appealing, open it up and it really stinks.
Let's look realistically at the minimum wage scenerio. A basic premise of economics is that price is based upon the perceived value to the buyer. When selling labor as well as materials, perceived value of the buyer will dictate the price of said labor. The buyer of labor is expecting to make a profit from his investment in labor, or else no incentive exists for him to make the investment to begin with. Therefore, the cost of labor is built in to all pricing models for goods and services.
When labor prices go up, the investor has one of three options. He can raise the price of the goods or services he offers. The price of the goods or services offered by the investor is dictated by what his customers are willing to pay. Therefore, if his customers are not willing to buy from him with the new price increase, this is not a feasible option. Another option is absorbing the cost with lower profit margins. However, this can only go on for so long, as profit margins can only dwindle so far before the third option, which is ceasing operations, has to take place. Simple indeed and irrefutable is my logic in this.
So one can see easily that if floor is placed on labor artificially, then prices will increase relative to wages, and no one is really better off, or either the investor is out of business and the low wage worker out of a job.
However, another factor plays in to pricing for goods: that is supply and demand. A simple concept, really, is supply and demand. If demand increases for goods or services and supplies cannot keep with the demand, prices increase. If supply exceeds the demand, prices must decrease. Currently, we have in the U.S. an ever-increasing supply of low-wage, low-skill workers crossing our southern border.
Unemployment rates are very low right now overall, which indicates that wage rates were acceptable before the hike. However, if a shortage of low skill labor occurs, the price paid for low skill workers will have to go up, and it will by virtue of market pressure. Since population growth is negative for the children of babyboomers, take illegal immigrants out and there is no other alternative.
So, in short, the best way and only logical way to better the economic status of low skill workers is the cut-off illegal immigration and seal the borders, in addition to creating stricter guidelines for work visas and legal immigration.
Let's look realistically at the minimum wage scenerio. A basic premise of economics is that price is based upon the perceived value to the buyer. When selling labor as well as materials, perceived value of the buyer will dictate the price of said labor. The buyer of labor is expecting to make a profit from his investment in labor, or else no incentive exists for him to make the investment to begin with. Therefore, the cost of labor is built in to all pricing models for goods and services.
When labor prices go up, the investor has one of three options. He can raise the price of the goods or services he offers. The price of the goods or services offered by the investor is dictated by what his customers are willing to pay. Therefore, if his customers are not willing to buy from him with the new price increase, this is not a feasible option. Another option is absorbing the cost with lower profit margins. However, this can only go on for so long, as profit margins can only dwindle so far before the third option, which is ceasing operations, has to take place. Simple indeed and irrefutable is my logic in this.
So one can see easily that if floor is placed on labor artificially, then prices will increase relative to wages, and no one is really better off, or either the investor is out of business and the low wage worker out of a job.
However, another factor plays in to pricing for goods: that is supply and demand. A simple concept, really, is supply and demand. If demand increases for goods or services and supplies cannot keep with the demand, prices increase. If supply exceeds the demand, prices must decrease. Currently, we have in the U.S. an ever-increasing supply of low-wage, low-skill workers crossing our southern border.
Unemployment rates are very low right now overall, which indicates that wage rates were acceptable before the hike. However, if a shortage of low skill labor occurs, the price paid for low skill workers will have to go up, and it will by virtue of market pressure. Since population growth is negative for the children of babyboomers, take illegal immigrants out and there is no other alternative.
So, in short, the best way and only logical way to better the economic status of low skill workers is the cut-off illegal immigration and seal the borders, in addition to creating stricter guidelines for work visas and legal immigration.
posted by Badbeans | 4:21 PM
2 Comments:
Well put. The very concept of minimum wage is, in fact, a socialist one...the belief that government is responsible for not only the protection of its citizenry, but also for the provision of a minimum standard of living. This concept has never worked successfully in the history of the world, yet societies everywhere continue to pursue it as the ultimate utopia. Inevitably, whenever a central government is responsible for the provision of the minimum standard of living for it's citizens, that standard decreases almost exponentially. This occurs for, not one but rather, many reasons but the fact remains clear, that markets tend to stabilize themselves when simply left to their own devices and with little or no interference from government. It's why the free enterprise of capitalism is by a vast margin the most successful economic process on the planet.
I argued this very fact not long ago with a man who said that he believed it was government's responsibility to ensure that the "working man" wasn't ripped off by the wages his employer pays. I tried, though unsuccessfully, to convince him that, NO it was the employees responsibility to make sure that he wasn't being ripped off. He said, "Paying minimum wage is like saying, 'If I could pay you less, I would'." I said that I couldn't argue that. But it doesn't change the fact that the work being performed isn't worth the financial investment of the employer to pay the minimum wage. He said that if that were true that employers could get away with paying people 2 or 3 bucks an hour and the employee wouldn't make enough to support a decent living. I said, "Would YOU work for 3.00/hr ?" He said, "Heck no!" Well, there you go, then.
I quickly realized that this man had no business sense...no concept of the economic forces that drive this country and the value of the dollar he earns and spends. Then I had an epiphany. Neither does most of the citizens of this country. The basic concepts of running a successful business in a capitalist society isn't taught in school. Why? Perhaps because the demagogues that educate our children are run by people who are unashamedly socialist. And the vast majority of these children will graduate High School, never to darken the doorway of an institution of higher learning. (Even those that do go to college have a very small chance of graduating having been educated on the value and success of Capitalism, the only economic process that takes into account the variable of HUMAN NATURE.) And these people vote, with little or no understanding of what they vote for. They are the population of sheep that socialists want. And so they are played like harp strings and spoon fed what essentially amounts to the box of cow dung you mentioned.
I would agree that an increase is an inflationary pressure, but there are portions that I disagree with. Namely, inflation itself.
Inflation is a monetary phenomenon. It occurs only when more money is created beyond the actual expansion of the economy. While increasing the minimum wage creates an inflationary pressure it has a very limited effect. The core of the problem is the continual expansion of the money supply which only Congress can reign in. Due to them NOT reigning in the Federal Reserve the process of inflation continues and what we eventually see is a higher dollar amount being paid to workers, but with lower purchasing power. It is a deceitful trick that makes people think they are better off than they really are.
So because Congress has failed to control inflation, it is almost their duty to increase what is being paid to the people of the country that they are continually screwing. The best solution, of course, would be to abolish the Federal Reserve and go back to a gold standard (or commodity based standard)
I have posted on this issue on my blog before. This post gives a graph of the minimum wage along with its relative purchasing power. And this post shows the loss of purchasing power for the average worker
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