Stryker wrote:You are right Birdseye, I have not studied economics. My ideas are based mostly on common sense and the reasoning I have provided, as well as a few basic laws I know. Please, do correct my assumptions if they are wrong"
an excellent attitude. kudos.
1. Businesses will always attempt to maintain a fair profit margin. If the price of their services/products goes to high for a specific good or service, consumers will migrate to another business with lower cost if possible. If the price is too low, the business will not be able to expand in the future, leaving it helpless before rapidly-growing competitors.
The word "fair" is in the vocabulary of but a few businesses, mostly small with private ownership. Publically owned corporations have a responsibility to turn profit and grow, there is nothing about fairness -- hence the exploitation of labor being a popular way to increase profits. The rest of your statement is reasonable, but doesn't really address the issues discussed.
2. Employees will usually attempt to force employers to give them just compensation for their labor. If a particular employer doesn't pay its employees enough for their level of expertise and abilities, the employees will usually seek a higher-paying job.
This is a fallacy. Because workers are often segmented regionally and often a handful of corporations own all the jobs, the consumers do not have the power you are talking about. E.g. say you are a repairman of a specific line of tractors fora corporation. There is no other job in repairing tractors in your city, much less in any nearby county. If the repairman likes the city he lives in, he is stuck and cannot get fairly compensated because *competition for his wage is imperfect*. This is a highly likely scenario for specialized segments of labor. Many companies have career workers who specialize in the design of that company's home gardening plastics... i could go on.
The assumption you make is that wrong is the concept of "perfect markets" and a "magic invisible hand" that is evening things out in the wage market. This is true a lot, but there a tons of exceptions with this being on of them.
Based on these two assumptions, my train of logic is as follows:
1. Forced wage increase requires businesses to raise their prices or lay off workers
I covered this in my above post already, and you only got this partially correct. Wage increase causes business to either 1) Raise price of good/service 2) Decrease cost of production (worker numbers or part/product quality)
2. Increased prices for services and products affect other businesses, driving prices for those businesses up farther, even if not directly affected by the initial wage increase; unemployment increase in effect increases the spending-to-income ratio average per household.
Yep, increase wages *can* result in inflation and employment if there is no program to counter the negatives. The problem with economics is that any positive regulation will have negative unintended consequences unless you pay attention to them. In the cases of increasing wages I am not that afraid of inflation as long as we can curb umemployment. This is the bane of wage increases. It's a very simply calculation (that also has empirical results) that increasing wages increases unemployment. However, I don't think this has to be the case. I think studies can be done to estimate which markets will be hit the hardest and offer these out of work people education and/or retraining. I think we aren't being creative enough with wage lows. The problem is that in many cases, yes, workers are paid to low, but paying those people more will make some of the people that are suffering *totally screwed*. We need to work on programs to offset unemployment after a wage increase. Because we DO have to increase at some point in response to inflatationary pressure, whether we decide to do it now.
By the way, I voted No on increasing the minimum wage in my city from $7.50 to $9.65 because the bill had absolutely no way to deal with unemployment. The job market in Santa Cruz is already very tough because with so many students there is bountiful cheap labor. We'll have some happy students with more money, but then some who can't find work.
3. Employees who had their wages increased will now have to pay more for basic products, in effect nullifying their wage increase. Unemployed workers now must seek new jobs at increased prices or gain in skill in order to be worth hiring.
This is a mathmatical error in your head. This logic makes sense if every company has an identical % of profit change as a result of the wage increase. The increase in wage will not affect all goods & services. Some won't be affected at all. Many companies do not employ low wage workers. It will only affect certain portions of the market.
In fact, you are thinking of the tide only turning one way. There is the opposite affect (which is very positive) of the low wage, high MPC consumers infusing the economy with money with their newfound riches.
Also, some companies will decide to decrease product quality instead of increase price.
What I'm saying is that, given time, the market will attempt to find a stable position that allows growth for business, no matter what factors such as high minimum wage and high taxes may try to shoehorn the economy into a plane. Capitalism, by its very nature, will have people who are rich and those who are poor.
This is true. This does not mean however that we can't have a minimum wage increase that benefits the entire nation.
On to Lothar's comments:
Birds, you bring up MPC quite a bit, but I've always found the argument questionable. Propensity to consume is important, but propensity to invest, save, educate employees, etc. are also important. You can't build a solid economy without all of these things.
I agree, all those things are important. See below.
Certainly there are times when the thing the economy needs is more direct consumption, but there are also times when the economy needs more investment, more saving, more risk-taking, etc. Minimum wage increases probably put more money in the hands of those most likely to consume (provided unemployment doesn't cancel out the overall effect of the wage increase), but often at the expense of money in the hands of those most likely to create jobs.
This is a fallacy. I've been thinking about this a lot lately, and I think I can now verbalise this much better than before, even to the point I think I *might* be able to change your mind.
The 100% or 99% MPC people spend their money, and who does it go to? The rich and well to do - people who own shops, property, etc. In fact,
giving money to the higher MPC people IMO is even *more* targeted towards investment & economic growth than giving money directly to the rich. How is this possible? Pretty simple, actually. When you do an across the board tax cut that blanket-benefits the rich you aren't selecting for the entreprenuers, or even business owners.
When the high MPC consumer consumes, the money goes right back into the hands of the rich. And not just the rich, the *right* rich people. Businesses that are running, current technology.
I like letting the market seek out where the money should go (I know I went on a rant earlier about invisible hands and markets being imperfect, but I think this is one of the cases where the standad line holds up. In the case of wages, we have evidence that business do not offer "fair" prices and the market still operates). Put the money in the hands of those who are going to consume, let us avoid predicting demand, and they will deliver the money more efficiently than if we blanket money on rich people.
Supply-side tax cuts give a blanket benefit to the rich, at no certainty of entrepreneurship. Demand-side tax cuts help the market stay efficient (you can look at a minium wage as the near equivelent increase as a form of demand side tax cut, as long as you could stave off unemployment) with certainty about the needs & wants of consumers. Those who operate profitable business will boom in times of demand side cuts. I just don't get what the rich have to complain when the poor get a tax cut. What, did you not expect them to go right back to your store? What did you expect them to do with the money? It coming right back at the rich.
The more I think about it (I'm actually changing my mind somewhat while writing) the more I am beginning to prefer state & national tax cuts in addition to regional wage increases. This would allow the wage increase to be more modest (easier on business and the market) while still benefitting those adversely affected by the 'unfair' pay.
