This is not political orthodoxy at all this is economic law. Anyone who understands the basic principle of supply and demand knows that higher price lowers demand. http://www.economicpolicyjournal.com/2014/06/asian-community...
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.
That may be true in the limited case, but the argument is clouded by questions like whether increasing income of all of the employers' customers would allow the employer to do more business or raise prices, thus potentially increasing their demand for labor to compensate.
I can't see any doubt that this would happen, but the extent is hard to determine. How much will the average consumer's wages actually increase, and how much of that will be taken up by increased prices in other goods they buy? If they end up with more money, what will they do with it - save more, buy higher-quality goods, buy luxuries? So the overall effect on any particular business is unknown.
I mean, I worked those jobs when minimum wage was like $4.25. I haven't noticed a drop in employment at the franchise or small business level. Have you? From a practical standpoint, these places aren't just spreading around labor hours willy-nilly today. If they find some "fat" to trim, they do so, so the management can take home a larger slice of the pie.
“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.
>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."
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.
The observations are plainly evident. Those who a minimum wage affect are largely the unskilled, which over proportionally includes young people and minorities. The rate of unemployment in black teenagers is currently somewhere around 30%. http://www.creators.com/opinion/walter-williams/minimum-wage...
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.
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.
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).
It will increase the income of people paid minimum wage, allowing them to buy more things, therefore increasing demand for some products.
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.
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.
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?
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.