(April 13, 2014 at 5:48 pm)Chad32 Wrote: I've been hearing about the minimum wage being so low that people with a full time job still need assistance or multiple jobs to make a living wage, but I've had people say we can't raise the minimum wage because stores and such will just raise prices.
I tried to tell them that everyone shouldn't have to raise prices because workers who get more money will be able to buy things in greater quantity. That wasn't very convincing, so i was wondering if anyone who knew more about economics could tell me how this works. How do we get the government to pay people more without employers jacking up the prices?
You can set up a price ceiling, while raising the wages for workers. With my very crude and rudimentary knowledge of basic economics I can try to provide an explanation.
For example, once the income of people rise, the demand for goods and services will also rise, at least according to what I was taught in the economics class I took a couple years back.
Similarly, once the demand for goods and services rises, the price will go up, however....you set up a price limit, so it won't venture above a certain limit.
The trick here is to set up the price ceiling in a way that it won't cause a shortage of goods and services, as if you set the price ceiling below the equilibrium price, you will experience a shortage of goods, the demand increases with the rise of income, yet higher minimum wages means that people will either produce less or hire less people, which can either mean that the supply will fall, or the demand will remain constant.
The price ceiling must be set up in a way that it won't cause a shortage, which would pretty much mean that the prices will still go up, but in..say, more illegal ways, for example, sellers will hoard their stuff, and sell it for the highest bidder, or to people they want to sell it to.
So, what is the solution? Its simple. There must be more production. The higher the supply, the lower the prices. You wouldn't even need to raise the wage in that way, since a person's money would be able to buy more than it previously did.
If you raise the minimum wage, you would have a new equilibrium price, somewhere above the old one, so if you have a price ceiling without an equal increase in goods and services, you will have a shortage, no matter what.
(April 14, 2014 at 11:08 am)Rampant.A.I. Wrote: The only reason labor is "priced out" of the market is to increase bottom lines. Big business does not care if their employees are homeless or destitute. They want cheap labor, demonstrated by the fact unions and regulation became a necessity.
I'm unsure how raising minimum wage by a few dollars to a living wage is in any way comparable to raising minimum hourly to $1000. Is there a point to that kind of hyperbole, or do you honestly believe if companies are obligated to pay a fair exchange for their labor, and unable to fire employees to hire cheaper labor they will simply opt out of hiring labor?
Well, in my opinion, the companies make their money by the use of labor. I don't think that companies owe anyone more than anything that they have promised-and what the employees have accepted.
This includes the profits.
However, a state owes its citizens, especially its workers, who are the arms and legs of a nation, decent and humane living standards. They must be strong and sturdy. So, improve the lives of your workers, and you improve the quality of the whole nation. The state must be there to keep the companies in line.
Other than that, I do not expect companies to care about anything else than their profits. This is what they should be worried about. The state must regulate them in a way that they will survive and thrive all the while ensuring a fair treatment for the workers.
It all depends on the state. We can yell and curse at the companies all day long. However, a company is not a charity, and we must acknowledge this fact. The state on the other hand is obliged to ensure the well-being of its citizens, not the companies, although screwing over the companies certainly will not be the most correct way to handle things either.
To better illustrate I made this graph(couldn't be bothered with excel, so I made it with paint). Here, the black lines represent the initial supply and demand lines, and red represents the final supply and demand lines.
Here, I draw a supply and demand graph for a normal good.
I know that this calls for a more macroeconomic approach, but this is the best way of expressing my opinion on the subject. As you see, the intersection of the initial supply line with the new demand line creates a new equilibrium price, higher above the initial equlibrium price.
Similarly, if we intersect the initial demand curve(meaning, not raising the income of the buyers) with the new supply line we can see that the equilibrium price falls.
However, if we raise the two with an equal amount, the equilibrium price remains constant. From that point on, any rise in the supply or demand may shift the equilibrium price either downwards on the demand curve or upwards, creating lower or higher prices respectively.
Now, lets say that the goverment puts a price ceiling, represented by the green line. If we increase the demand(meaning, the income), without increasing the supply of the said good, the supply curve will fall short(meaning the quantity of the said product will not meet the demanded quantity), and we will have a shortage of the said good.
In both equilibrium cases, a price ceiling would only serve to decrease the consumer surplus of a company, nothing more.
By the way, feel free to correct me as you see fit.