Raising the minimum wage is part of the Democrats platform

[erowe1]

If you own a business and the minimum wage is increased, you have to increase the price of your product in order to pay your workers and still make the same profit.

Either that or the employer spends less money on other things, causing the demand curve for them, and thus their price, to go down. In actuality, over the whole economy, both of those things would be happening.

Meanwhile, with those businesses that increase prices to pay for their higher minimum wages, it will not be the case that their customers will continue to buy as much of them at those higher prices. The only way they could would be if they had more dollars to spend, in other words, if the money supply increased. Inflation is a function of the money supply, not price controls.

Imagine a Monopoly game, where you keep the same total amount of money in the game the same, but you enact a rule that places a minimum selling price on some property that is higher than it would normally go for. The result would be a lowering of the average price of other properties to make up for the one that artificially increases. To make the total average price of all properties go up, you have to inject more money into the game.

ETA: There's another implicit fallacy in that argument, which is that businesses can increase their revenue by increasing prices. They can't. They set their prices at the ideal point for them to make maximum revenue. If they could increase their revenue by raising their prices, they'd have done it already. They wouldn't have to wait for a minimum wage increase.

 

[TheGrinch]

Either that or the employer spends less money on other things, causing the demand curve for them, and thus their price, to go down. In actuality, over the whole economy, both of those things would be happening.

Meanwhile, with those businesses that increase prices to pay for their higher minimum wages, it will not be the case that their customers will continue to buy as much of them at those higher prices. The only way they could would be if they had more dollars to spend, in other words, if the money supply increased. Inflation is a function of the money supply, not price controls.

Wages as a whole will tend to raise with minimum wage... I mean, you can't pay your lowest level employees the same as you pay your upper level employees, can you? I know some who work for companies that just do it 1.5X, 2X, 3X, etc. of minimum wage.

So yes, when you raise minimum wages, it will tend to raise costs and prices very much like inflation, all while hurting the underskilled workers you're claiming to help (if I'm going to pay more for an employee, I'm going to take the one who is more skilled. That same employee might not have done it for $5/hour like an underskilled one would, but certainly mgiht for $10. The jobs will go to those with more skills, while the underskilled/undereducated and often poor take even less of the scraps)

 

[erowe1]

you can't pay your lowest level employees the same as you pay your upper level employees, can you?

You can if the government makes you do it. But it's not so much about paying them the same. It could just be having to change that ratio from 3x to 2.5x. Lowering the wages of higher-paid workers (or increasing them at a lower rate than you otherwise would have) is one of the options available to employers who have to increase the wages of their lowest paid workers. It's inevitable that some would find that they had to do that.

So yes, when you raise minimum wages, it will tend to raise costs and prices very much like inflation

No it doesn't. Certainly it causes some prices to go up. But in order for that to happen, other prices will have to go down.

 

[jmdrake]

Been waiting for the right time to post this.

 

[TheGrinch]

You can if the government makes you do it. But it's not so much about paying them the same. It could just be having to change that ratio from 3x to 2.5x. Lowering the wages of higher-paid workers (or increasing them at a lower rate than you otherwise would have) is one of the options available to employers who have to increase the wages of their lowest paid workers. It's inevitable that some would find that they had to do that.



No it doesn't. Certainly it causes some prices to go up. But in order for that to happen, other prices will have to go down.

I don't follow how other prices have to go down for some prices to go up.

Look, if it costs companies more to produce a product, then they will either find ways to reduce costs, raise productivity or raise prices to a level that the consumer is still willing to pay, often all 3. When employees are paid more, then they will have more money to spend without necessarily being any richer.

I mean, no, when you have a global ecomony, wages/prices certainly don't exist in a vacuum, so you're right that it's not that simple, but I don't think it's so simple as you're making it either.

Anyways, the far better argument is that this only contributes to unemployment of the exact group that MW advocates are claiming to help, the underskilled poor.

 

[erowe1]

I don't follow how other prices have to go down for some prices to go up.

Because there's only so much money in the money supply. You can't make more of it appear just by raising something's price.

Look, if it costs companies more to produce a product, then they will either find ways to reduce costs, raise productivity or raise prices to a level that the consumer is still willing to pay, often all 3.

The correct answer, spread out over the economy, is all 3. Notice that the first option you give, "reduce costs," is one that drives prices of certain things down.

When employees are paid more, then they will have more money to spend without necessarily being any richer.

And when they have less, the will have less to spend. Raising the minimum wage causes some to have more and others to have less.

While this all goes on, the net change in overall prices of everything will be exactly whatever the change in the money supply causes it to be.

 

[Xhin]

The minimum wage is needed though because no one in the entire country works for higher than it!

 

[TheGrinch]

Because there's only so much money in the money supply. You can't make more of it appear just by raising something's price.

I wish I was fresher on economics to be able to rebut this better, but that is simply not the case.

For instance, the raise in price of gas makes pretty much everything more expensive at the store, because virtually everything has to be shipped. Similiarly, if you were to raise the minimum wage nationally, it would also probably raise prices across the board, because labor like gas would be more expensive for many. Raises in costs almost always get passed down to the consumer.

It has very little to do the money supply (unless of course the money supply is the thing being changed). It has to do with the economics of the businesses and consumers on a micro level, not a macro level.

 

[erowe1]

I wish I was fresher on economics to be able to rebut this better, but that is simply not the case.

For instance, the raise in price of gas makes pretty much everything more expensive at the store, because virtually everything has to be shipped. Similiarly, if you were to raise the minimum wage nationally, it would also probably raise prices across the board.

It has very little to do the money supply (unless of course the money supply is the thing being changed). It has to do with the economics of the businesses and consumers on a micro level, not a macro level.

It's not something all economists agree on. In school you might have learned about cost-push and demand-pull inflation, which is I think what you're describing. I don't buy it, neither in the case of minimum wage, nor gas, nor anything else. If you have to spend more on gas, then you have less to spend on video games, so the demand for video games goes down, and with it their prices. It is all about the money supply. In order for the price of everything to go up, the money supply has to go up. And if the money supply does go up, at the same time that some price control causes the price of one item to go up artificially fast, then other items' prices will have to go up less fast than they otherwise would have given the monetary change.

 

[erowe1]

All that said, there could definitely be a correlation between minimum wage and inflation of the money supply. Since inflation relieves the burden of the minimum wage, a government could raise the minimum wage along with inflation at a pace that keeps its net burden on the economy constant. And that way politicians could keep re-using their pro-minimum wage arguments each election, and as long as they don't go overboard, they'll be able to do it without making a noticeable change in unemployment. To pull this off, they need to keep inflating the money supply. So the two things work together.

 

[TheGrinch]

All that said, there could definitely be a correlation between minimum wage and inflation of the money supply. Since inflation relieves the burden of the minimum wage, a government could raise the minimum wage along with inflation at a pace that keeps its net burden on the economy constant. And that way politicians could keep re-using their pro-minimum wage arguments each election, and as long as they don't go overboard, they'll be able to do it without making a noticeable change in unemployment. To pull this off, they need to keep inflating the money supply. So the two things work together.

Again, I think you're speaking of a macroeconomic issue that happens when consumers are tapped out and demand falls (a significant problem when you've based your economy around consumption more than production). But that does not necessarily correlate to changes in wages/prices, which are a reflection of many things, not just the amount of discretionary spending one has.

Your view doesn't take into account that many people don't spend every dollar they make. Thus, if I really want the new Madden, and I have enough discretionary income to afford it, then it's going to take far more than a $5 change in price to change my demand for it, even if I'm paying more everywhere else. It would only change my demand for it if I didn't have much discretionary income, but again, I think that's more of a macro-economic matter.

So back to the topic at hand, if consumers have more money in their pockets to spend, companies are paying more for labor, then how does it not follow that prices will raise along with costs and wages?

As I said earlier, they will still only rise to a level to where enough consumers will still purchase it, and to a level that the company is still making their desired level of profit (this can still even happen with higher prices and lower demand, as they can make more per unit. I can assure you that Ferrari doesn't make their money from volume. Just because your average consumer may not be able to afford it, doesn't make it any less in-demand for those who can, and might make it more in demand).

So no, I do not see how the monetary supply is the end-all-be-all here... Of course monetary supply changes can affect everything, but prices and wages can also be very independent of the monetary supply. There simply many more factors in play when it comes to prices than jut the monetary supply.

To put it simply, the monetary supply can continue to change hands and still end up right back where it started, without any prices necessarily needing to fall.

 

[TheGrinch]

All that said, there could definitely be a correlation between minimum wage and inflation of the money supply. Since inflation relieves the burden of the minimum wage, a government could raise the minimum wage along with inflation at a pace that keeps its net burden on the economy constant. And that way politicians could keep re-using their pro-minimum wage arguments each election, and as long as they don't go overboard, they'll be able to do it without making a noticeable change in unemployment. To pull this off, they need to keep inflating the money supply. So the two things work together.

Agreed on this. Just because the two don't have to be exlcusive, doesn't mean the Keynesians won't use both artificial manipulations side by side (triple negative aside).

 

[erowe1]

So back to the topic at hand, if consumers have more money in their pockets to spend, companies are paying more for labor, then how does it not follow that prices will raise along with costs and wages?

If consumers have more money to spend, and companies are paying more for labor, then yes, prices overall will rise. But the only way consumers can have more money to spend while companies are paying more for labor, is if the money supply increases. You can't just write a law that forces people to have more money to spend without providing the money.

 

[TheGrinch]

If consumers have more money to spend, and companies are paying more for labor, then yes, prices overall will rise. But the only way consumers can have more money to spend while companies are paying more for labor, is if the money supply increases. You can't just write a law that forces people to have more money to spend without providing the money.

Sure you can, that's exactly what raising the minimum wage does, and part of why it's a problem.

You do not need more money for this to happen. This money you're trying to compensate for is still there, it's just changing mre hands before it returns to whence it came.

Here's a flow chart - Employers pay employees more > Employees buy goods from companies at higher prices > Money goes back to the employers. No additional money is needed in the equation to compensate for higher prices. It's already there, it just has to change a few hands before it goes back to those employers' personal money supply.

 

[Pauls' Revere]

If you own a business and the minimum wage is increased, you have to increase the price of your product in order to pay your workers and still make the same profit.

Spot on! the same holds true when taxes are increased. Business (be it large or small) raises prices to meet or exceed expenses (be they operational or taxes). Thus, the minimum wage then loses it's purchasing power, and the cycle repeats. They start to complain they dont make enough to meet higher prices.

 

[thehungarian]

What could go wrong?

 

[Pauls' Revere]

Just what is the "minimum wage" that someone should make exactly?

It's like saying there needs to be a "maximum wage", what is that exactly?

someone please give me an exact number.

 

[CaptUSA]

Here's a flow chart - Employer pays employee more > Employees buy goods from companies at higher prices > Money goes back to the employers. No additional money is needed in the equation to compensate for higher prices. It's already there, it just has to change a few hands before it goes back to those employers' money supply.

Did you see the error in your flow chart? You went from employee in the singular to employees in the plural. If you have fewer employees, your equation doesn't work.

 

[erowe1]

Sure you can, that's exactly what raising the minimum wage does, and part of why it's a problem.

No you can't. And that's how we know that raising the minimum wage doesn't do that.

Here's a flow chart - Employer pays employee more > Employees buy goods from companies at higher prices > Money goes back to the employers. No additional money is needed in the equation to compensate for higher prices. It's already there, it just has to change a few hands before it goes back to those employers' money supply.

But the government can't make that flow chart happen to all people at the same time without increasing the money supply. If they keep the money supply constant, and they try to make that flow chart apply to one group of people, then while that happens, there will be another flow chart happening to another group of people that involves them getting paid less, spending less, and driving prices down. The only way everybody can pay more at the same time is if there's more money to spend.

 

[erowe1]

Did you see the error in your flow chart? You went from employee in the singular to employees in the plural. If you have fewer employees, your equation doesn't work.

Good point.