Hacker News Reader

Comment by jameshart | Hacker News Reader

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.

View on HN

>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).

> 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.

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.

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.

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.

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?

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.

Reply on news.ycombinator.com