If the worker’s labor was worth $15/hr, that’s what they’d be paid. Worth is established by the transaction.
How much effort do you think your favorite beer has put into creating a specific flavor profile that fits into a gap in the market, figuring out who to market it to, and then crafting a specific value proposition to make it appeal to you at a given price point?
A bottle of water costs 99 cents at the store.
You’ve been in the desert without water for three days. If you don’t have a drink you will die. How much is that water worth to you? Would you pay 100 dollars for it, or would you insist it’s only eorth 99 cents, and die of thirst based on your principles?
Pepper was priced pari passeu with gold at one time? Was that a true equivalency. Things are mispriced all the time.
What you are arguing is something called the efficient market hypothesis. It is how things work in ideal markets or how things tend to work over very long periods of time, but it is not how things work in a day to day environment.
Are you honestly arguing that a single bottle of water in the middle of the desert is analogous to the level of competition in a labor market of hundreds of millions if not billions of people? That’s like saying corn is inefficiently priced because the Mona Lisa is worth millions.
[quote=“Little_Nemo, post:39, topic:774234”]
I feel I have a pretty good grasp of economics. Enough to spot a lot of those x-factors I spoke of.
These things are subjective. This doesn’t mean they are not real.
Yes, they can, and they do all the time. These physicists chemists and biologists work with economists to design a cigarette that is maximally addictive, and optimally satisfying so that you smoke as many as possible. They are priced precisely at the point where, in their particular market as to extract the maximum amount of cash possible from their customers. Any more expensive and they would lose market share, any less and they would lose profits based on volume.
You could believe the tooth fairy is real, but that doesn’t make it so.
[quote=“Scylla, post:45, topic:774234”]
Then why do prices fluctuate?
[quote=“octopus, post:46, topic:774234”]
For the same reason everything changes. We don’t live in a static environment.
People are instinctively hung up on the idea that markets are efficient. It’s simply not true. Mispriced transactions happen all the time.
Last week I read about a da vinci that was purchased at a garage sale for chump change, and then later sold for 10s of millions. That transaction was mispriced because one party had information that the other party did not have and used that knowledge to their advantage.
Things change, we live in a dynamic environment, not everybody simultaneously poses all the relevant information, everybody does not always evaluate the relevant information optimally. This is why prices fluctuate
This is really pre-macroeconomics 101 stuff here.
Google “Reductio ad absurdem.” Mr. Scylla gave an extreme example to make it clear his underlying point was valid.
The near-monopoly power of WalMart puts a downward pressure on wage levels. That’s a fact. Stronger unions would put an upward pressure on wage levels — another fact — but legislatures have replaced their zeal against corporate cartels with a zeal against labor unions. These simple facts should put to rest any idea that a wage or price is necessarily a perfect price found by “the market.”
And there are plenty of other reasons to doubt that particular prices are the perfect-snowflake prices. Is the wage a pimp makes the exactly correct free-market price of his services? Henry Blodget made millions as a Merrill Lynch lying about the stocks he covered; should his wage have been higher or lower had he told the truth? The simple bottled water example might even be instructive; is even 99 cents the “fair” price? I pay 3 cents per liter for bottled water delivered to my door.
~ ~ ~ ~ ~ ~ ~ ~
I agree that an improved safety net — government-paid healthcare, childcare, basic food — would reduce the importance of minimum wage laws, but it is disingenuous to argue against minimum wage laws in the U.S. on that basis. Especially since any hope for such a progressive agenda has just been shattered for a generation.
[quote=“Scylla, post:47, topic:774234”]
You just stated in a post above that the prices were set optimally. I don’t see how you can reconcile your two points of view.
The market may not be perfectly efficient. However in a huge market like the US supply and demand work better for commodities such as labor than a central planning committee such as Mao or Stalin would’ve employed.
Wal Mart has thousands of competitors. Here’s one. Amazon.
And reductio ad absurdem is absurd to use when it’s not a reduction. It’s a change of the fundamental model in the case of comparing a situation of a life threatening emergency in a desert with one bottle of water to a competitive market involving billions of commodities.
The thing is there are no intrinsic dollar values for goods or services. Things are worth what they are exchanged for. Pushing for wage floors only hurts the least valuable workers. It doesn’t hurt me much. Not as much as it hurts those who can’t find a job because the factory moved to Mexico or China. And day labor exists. How do you reconcile wage floors while turning a blind eye to “undocumented” day labor?
Not today.
The transaction happens because the worker’s labor is worth more to the organisation than $15. Usually much more: think how much it costs to recruit people and then all the admin costs of having extra staff.
The company is trying to maximize utility, not break even.
It’s the same as any ordinary economic transaction.
To slightly shift Scylla’s example, I’ve never been dying of thirst in the desert, but I’ve been in tropical countries where I was extremely thirsty and not seen any convenience store for hours. When I eventually find a shop, and they’re selling water for 20c a bottle do I insist that I pay $5, since that was what I was willing to pay up to?
And likewise starbucks doesn’t insist on paying a barista at a busy location $100 an hour, even if the coffee revenue per hour is 10 times that. They pay as low as they can and still have responsible, presentable candidates apply.
[quote=“octopus, post:49, topic:774234”]
I believe I said the opposite and you misread me.
“Better than Stalin”. Is a pretty low bar.
That’s because the market value of the labor is basically independent of the profitability of the business. The water example you used is an example of how markets set prices. What you as individual is willing to pay is just one tiny data point in a competitive market. If information was 100% transparent you’d be charged more. I’m sure you can think of many situations in which pricing discrimination occurs in order to extract more money from those willing to pay more.
You saying cigarettes are priced precisely at the point to maximize revenue and my interpreting that as people can knowingly set optimal prices is a misreading?
I’d said in my first post in this thread that markets of not automatically produce efficient results. This is not too say efficient outcomes don’t occur.
In the case of cigarettes, we have a century plus of experimentation and analysis and competition amongst the producers of cigarettes and over that time period they have produced a pretty damn efficient result.
Octopus:
The confusion you felt is my fault. I had thought you were referring to an earlier post.
Well I can agree with all that, so let me try to summarize my point.
A lot of people in this thread, and generally when discussing MW in the US, talk about paying workers more than they’re “worth”. And some here have doubled down and suggested by definition if a worker is paid $5 an hour, then that’s what her labor is worth. That it would be unfair to compel a company to pay her $7.50 for work that isn’t worth that.
But they are confusing market price and utility / value. For a company to go to the time and trouble to hire someone for $X, their output must be considered to be equivalent to much more than $X.
Indeed, the only relationship between the perceived utility of hiring that person (A), and their salary (B), is that A is greater than B, because otherwise a transaction wouldn’t happen. But since the market sets B, B could be orders of magnitude less than A.
A MW just sets a floor price. No transactions below this amount. It doesn’t compel companies to pay anyone more than they’re worth. Regardless whether you think MW is a good idea, we can agree on this point, no?
MW doesn’t compel a company to pay anyone more than they are worth. It also doesn’t make their labor worth anything more.
It could be, sure. The thing is, raising B by fiat does not automatically change B. If B + MW > A, they don’t get hired.
Regards,
Shodan
It is worth the observation that the empirical econometric literature on the impact of the minimum wage laws is complicated. The real world of the wage behavior has the complexities of behavior for reasons like clear stickiness of the wage and the salary levels and mostly to the decrease in the nominal values. It fits to the observed loss aversion biases that emerge in the human economic behavior across the sweep of the economic behavior that depart from the pure mathemetical.
If the conversation is to be properly economic, it is necessary to observe the market efficient behavior in wages departs from efficiency with frequency and importantly sometimes depending on the types and the markets.
An allowance is needed for this - the simplistic use of the economics basics observations is okay for the general principal of the direct administrative wage setting being a problem, but it is not empirically clear, this for the liberal free market economic analysis.