“intrinsic value”? I thought things only had the value that the market gave them. If things have intrinsic value, and if those things are human beings, well, I think that’s a darned good argument for a living wage.
I think what December meant was that the public misjudged what the market price would be at some future date.
Suply and Demand takes price ceilings and price floors into acount. Price floors cause surpluses (ie surplus of unemployed workers in the case of minimum wage laws) and price ceilings cause shortages (ie shortage of affordable rent-controlled appartments).
Transactional costs and other distorting factors related to supply cause the supply curves to shift. Advertising, irrational exuberance and distorting factors related to demand cause the demand curve to shift. Even monopolies are ruled by forces of supply and demand. How much business would a cable company get if they decided to charge $500 a month for cable access. Not too much.
Just because some of you people don’t “believe” in the laws of economics doesn’t make it not so.
It doesn’t matter what a persons wages are. What matters is purchasing power. Everyone in America could have a six figure salary but if a loaf of bread costs $5000 we would all still be poor. Maybe we should tel companies to make everything cheaper?
The question under discussion is why the minimum wage has not, historically, resulted in problematic levels of unemployment. There are numerous reasons why this might be the case. First, Americans have very high levels of productivity and these gains have very often not been matched by corresponding wage increases. Increased productivity without increased wages means increased profits. So perhaps when the minimum wage goes up in such a context productivity gains are diverted from profits to higher wages. Hence, no need to raise the cost of services, and no impact on demand.
Here’s another thought. Workers now have more spending power: they therefore stimulate demand making up for any slack caused by higher prices to consumers.
And then there’s always the possibility that the demand for a service is relatively fixed; people are willing to buy the product/service at the same level despite a small increase in price.
People’s behaviors are strange. For years people bought coffee for around 75cents/cup out of a plain paper cup from a deli. Then Starbucks came along and got people to drink coffee out of a fancy paper cup for around$2.00. Many people bought more coffee for $2.00 than they ever had for 75 cents. Why? Because it was the thing to do. (This tallies with some of El Jeffe’s analysis.)
Behaviour may be strange, but it’s not a refutation of supply and demand. Look up the work of Thorstein Veblen, who posited that sometimes goods can become MORE desirable as their price goes up. Designer jeans, for example. But he was describing psychological effects that can cause demand for a product to change.
No problematic levels of unemployment – al least, not for Caucasian women. However, from a 1999 source
As I understand Smith, the originator of the theory of supply and demand, every commodity has a “natural” price, which is set at the point where supply and demand meet.
Firstly, such a coincidence is entirely impossible - one or the other factor will trail behind its counterpart, and never the twain shall meet. There are all sorts of factors both within and outside of actual production that can influence supply and demand. Therefore the concept of a “natural” price is nothing more than a chimera.
I think the most important factor influencing price, however, is innovations in methods of production. A manufacturer isn’t going to invest in the production of an item if he can’t raise the capital to cover the costs of its production. But should a new process be discovered that cuts the cost of production in half, making the investment affordable, he’s certainly going to invest capital into producing this item.
Now, of course, the price has fallen. He can produce the item more cheaply and sell it at a lower price than his competitors already in the field, thus meeting demand that already existed but could not buy the item at the higher price. But that demand did not create the price, since that demand already existed. If demand had determined the price, the capitalists already engaged in that item’s manufacture should logically have tried to sell it at the lower price - except for the fact that their profits would either be markedly lower or they would actually lose money because the proceeds brought in weren’t enough to cover the cost of production using the old methods.
Demand is used in the calculation of price, because the manufacturer wants to know how much profit can be made if a product is sold at a particular price. But demand is not the primary determining factor in price; that factor is the cost of production, including wages and other job-related benefits like medical care and vacation leave.
Therefore, I posit that the law (or the theory, if you will) of supply and demand is an utterly useless tool in determining the price of any commodity, labor power included.
december, are you saying that the increase in unemployment of young Black men is solely attributable to the existence and gradual increase of the minimum wage?
Not solely, but partly.
The “natural price” to which you are refering is the “equilibrium price”. That price is not fixed as it is depended on supply and demand, both of which are dynamic.
In reality, setting prices is more complicated than simply loking at a P/Q graph. If it were that easy, companies would always have exactly the right amount of inventory on hand all the time. That does not invalidate the theory though. S&D tells you is that if you are constantly selling out of a product faster than it can be produced, the price could be set a little higher. It is also the reason companies have sales instead of jacking up the price to get rid of extra inventory.
Demand is price dependent. That is why a company that can produce a product more cheaply than the competition has an advantage. All things being equal, they can undercut the competition and grab a larger market segment.
There are a number of factors in determining the price of an item. Understanding the demand for a product is a big part of it. How do you think that companies figure out if a product or service will be profitable?
Supply and demand is probably the best tool for setting the price for a commodity. That is why commodities are sold on open markets.
A perfect example would be the boom in technology jobs in the mid-late nineties. Between the Internet boom and the Y2K scare, demand for IT professsionals skyrocketed. Programmers with CS degrees from nth tier schools were receiving big salaries and signing bonuses and jumping ship every 18 months for what is essentially a back-office support function. Then the bubble burst, companies realized they could farm much of their IT work overseas and we don’t hear about those big salaries anymore.
If you don’t believe in supply and deman, I wonder how you think salaries are set? No particular company in the economy hires enough of any one particular job to influence salaries by themselves.
Sam: “Behaviour may be strange, but it’s not a refutation of supply and demand.”
Right (perhaps you’ll notice that I wasn’t suggesting a refutation of supply and demand).
december, I share your concern about disproportionate levels of unemployment amongst African-American teenaged men; but I doubt very much that if we were to freeze the minimum wage as its present levels that we see that trend reversed.
The odd thing about your citation is that it fails to state the most obvious conclusion about its own findings. Since both white and black teenagers get the same minimum wage, only race can explain the disparity between the two groups. The National Center for Policy Analysis seems to have found “new evidence” of racial inequality, not of problems to do with the minimum wage.
In any case, living wage proposals can be limited to full-time work; teenagers’ work is almost always part-time.
Olentz: “That’s Emily Letella, Mandelstam.”
Um, never mind. 
If you don’t think minimum wages affect unemployment, imagine what would happen if the minimum wage were eliminated: There are a lot of jobs out there for people willing to work for $2/hr. Cities could hire them just to walk along and clean up trash, for pete’s sake. There would be very, very low unemployment. The people that didn’t have work would only be those who refused to work for that amount of money.
And that would become the new average minimum wage. As the economy becomes wealthier, that wage would steadily increase on its own.
We may actually be close to the point where the natural minimum wage is pretty close to the legislated one (i.e. the people who are not working are essentially only those who would not work for minimum wage, even if it wasn’t a law.) That would be why the minimum wage laws never showed a spike in unemployment.
But I guarantee you that if you raised the minimum wage by say, $2.00, you would see a measurable spike in unemployment.
If you don’t think minimum wages affect unemployment, imagine what would happen if the minimum wage were eliminated: There are a lot of jobs out there for people willing to work for $2/hr. Cities could hire them just to walk along and clean up trash, for pete’s sake. There would be very, very low unemployment. The people that didn’t have work would only be those who refused to work for that amount of money.
And that would become the new average minimum wage. As the economy becomes wealthier, that wage would steadily increase on its own.
We may actually be close to the point where the natural minimum wage is pretty close to the legislated one (i.e. the people who are not working are essentially only those who would not work for minimum wage, even if it wasn’t a law.) That would be why the minimum wage laws never showed a spike in unemployment.
But I guarantee you that if you raised the minimum wage by say, $2.00, you would see a measurable spike in unemployment.
We already have a lot of businesses who won’t let anyone work over 35 hours a week because that’s the cut line at which an employee is considered “full time” and must be afforded certain benefits under law. Many of the people holding these jobs are not teenagers. Making the minimum wage apply only to full-time positions will result in even more positions being classified “part time” in order to evade regulation.
Kelly, I’m not talking about the minimum wage; I’m talking about a hypothetical living wage. I’m suggesting that teenagers don’t need it; yet those who do shouldn’t be forced to compete with teenagers. I’m sure there are number of different ways to approach this; but one possibility would be to have a special minimum for part-time teenagers and have the hours of work be limited to less than 35 hours; perhaps capped at 30. Another would be to have age itself be the factor. These are just ideas, obviously. I haven’t read the EPI’s living wage report, or anyone else’s, so I’m not familiar with the details of any of the plans that have been floated.
Sam, I’m sure initially there would be a spike in unemployment; but it would not necessarily last. Bear in mind, I don’t name a specific figure because I think that something like a living wage is going to vary geographically, and has to be determined by people who know what they’re doing (duh). Obviously benefits and costs have to be weighed. And, as I said above, I do think there are other ways to help the working poor reach the “living” level; but it’s also true that wages haven’t kept pace either with inflation or with productivity gains. One thing I definitely do not believe, however, is that people should work for $2/ hour.
Kelly, I’m not talking about the minimum wage; I’m talking about a hypothetical living wage. I’m suggesting that teenagers don’t need it; yet those who do shouldn’t be forced to compete with teenagers. I’m sure there are number of different ways to approach this; but one possibility would be to have a special minimum for part-time teenagers and have the hours of work be limited to less than 35 hours; perhaps capped at 30. Another would be to have age itself be the factor. These are just ideas, obviously. I haven’t read the EPI’s living wage report, or anyone else’s, so I’m not familiar with the details of any of the plans that have been floated.
Sam, I’m sure initially there would be a spike in unemployment; but it would not necessarily last. Bear in mind, I don’t name a specific figure because I think that something like a living wage is going to vary geographically, and has to be determined by people who know what they’re doing (duh). Obviously benefits and costs have to be weighed. And, as I said above, I do think there are other ways to help the working poor reach the “living” level; but it’s also true that wages haven’t kept pace either with inflation or with productivity gains. One thing I definitely do not believe, however, is that people should work for $2/ hour.
Oh and let me add that during the boom economy we already had, very low unemployment. About as low as unemployment ever gets. But what we also had was people working full-time and then some and still unable to support themselves. That’s the problem being discussed here. Your answer seems to be that you can’t address that problem of sub-living standards without creating a different problem (unemployment). That may be true–but since you’re still arguing against the existence of a minimum wage, which has been around for decades without demonstrable harm, I’m not sure how seriously you expect anyone to take your criticisms.
Sorry about the double-post plus addendum; the board’s acting very odd tonight.
Any time the government takes money from one person to give it to another (e.g. welfare) or forces people to spend their money in a certain way under penalty of prosecution (e.g. minimum wage laws), I call it theft. Granted these things are not some much theft as strong-arm techniques, but they are what I was referring to. I never accepted Welfare when I had the opportunity because I felt like it would be accepting stolen goods. Minimum wage is harder to avoid accepting both because I had no idea what they would be paying me if no law existed and asking to be paid less than minimum wage would be asking them to commit a crime. Whether I agree with the law or not, I cannot ask someone to break it. On the other hand I can support the repealing of said laws.
It is not the worship of Supply and Demand that gives me my views. I simply want as little governmental involvement in the people’s lives as possible. Although there will never be no government in America and thus we will always have some laws (e.g. laws against murder and rape), most of the laws seem totally unnecessary. Most people seem to feel that there is some magical ingredient in humans that make them more special than any other species. I don’t see it that way. I can see why people like to think that. It is self-serving. Nothing like declaring one’s own species as the ultimate species and thus worthy of all sorts of rights that no other species is worthy of. The reasoning behind it is clear, but that doesn’t make it true. Humans, dogs, trees, bacteria, they are all life and are all equal. Like everything on earth they are all expendable resources.
If I enter a Burger King and kill the person working behind the register, there will be someone there to replace him the next day. How can you claim that the dead person was of such value to the company and so worthy of a living wage when he has already been replaced? Now I will concede hiring and training people does cost money (and therefore it is beneficial for a company to try and keep the same employee for some time), but there comes a point when it is cheaper to hire someone new and fire the old employee that wants too much money. I also admit that if I killed every burger flipper in America, I would create severe complications for the fast food industry because of a lack of employees, but when one dies because of an inability to afford health care, you just cannot argue that it is in the company’s best interest to give health care to all its employees. It is only when there is an epidemic that is wiping out huge numbers of employees that the company may benefit from offering health care plans to low wage workers. But as long as there are plenty of people to fill the void that dying workers create, the loss of workers is nothing more than the loss of an expendable resource.
I do believe in compassion, but only at the individual level. The government should be a cold, calculating machine. The individuals are the ones I look to for compassion, but this compassion should only come from their own free will (and thus I am against any law that forces people to be compassionate).
Procacious, if you really chose to live on the street and eat lard rather than accept public charity, you are grossly irrational, and I see no point in trying to reason with you. Goodbye.
I question the intelligence, rationality, and wisdom of someone who refuses to accept government assistance, but who still pays taxes. And I question the humanity of someone who believes that it’s not a problem for employers to not care if their employees die or not, or who categorizes humans as expendable resources.
Procacious,
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Human beings are ends in themsleves and do have value above and beyond bacteria and other animals. Such value is enshrined in the law.
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Minimum wage is now theft? So tell me is disability theft? What about mortgae credit on income taxes? Is using public facilities subsidized by the government theft? Are the wages soldiers recieve theft? Their health care? Now, what about the soldiers that receive food stamps as well? What about veteran benefits such as disability and subsidized loans?
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Pray tell, how can one with your views live without thieving?