If Labor Exists on a Supply Demand Curve, what happens when the price is raised?

Currently the score is 31 to 2 in favor of labor existing on a supply / demand curve. So, if Labor follows the rules of Supply and Demand, then what happens when, all other things being equal the price of labor is raised?

demand decreases in my opinion . but if people are stupid enough to increase it ... maybe increases

Demand obviously decreases... In case this is a backwards way of getting to a debate in minimum wage, let me be more direct to make it more interesting:

If you raise the minimum wage, supply of labor (the laborers) may increase, but the demand for the same labor, at those higher wages, will surely decrease to some degree in the short-term. For the labor which is necessary, the additional cost will be passed along to the consumers by increasing the prices of the product/service, which will affect those collecting minimum wage the most in their expenditures. Those who own and or manage the business generally increase their profits as a percentage of their costs, so they'll pocket the difference. The end result is minimal to no net change for those receiving minimum wage and higher profits for the upper middle class.

Just depends........price of labor works differently than the price of goods

Fisher said:

Just depends........price of labor works differently than the price of goods

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Really?

Why?

If all suppliers of a particular product raise their prices, and depending on how much the price goes up, demand may not change, depending on the segment you are currently servicing.

If you offer a common product, one that falls into a 'necessity' category, chances are your demand will not change unless you price yourself way over market.

Don't know about anyone else here, but toilet paper is not something I'm willing to give up. :wink:

cpwill said:

Really?

Why?

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Because McDonald's needs a certain number of employees to operate whether they have to pay then $7.25 or $9.00 an hour. On the other hand, if the $1 menu becomes the $1.25 menu, people will buy fewer McDoubles because their products are more discretionary than the labor that produces it.+

Raising the minimum wage is largely a false economic promise because of what the bulk of minimum wage earners spend their money on, but we should do it anyway for the benefit of those who do actually have to survive on it and, hopefully, because it lifts people above the Earned Income Credit qualification tables.

cpwill said:

Really?

Why?

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Because labor usually directly affects production, while goods are typically the result of production and do not directly affect production.

But if the goods in question do affect the production, demand is usually unaffected by price. If I need corn in order to make corn chips at my factory, my demand for corn will not be affected by the price of corn. The price of my product, however, will often go up to account for the increased price in order to maintain my profits. If I run a trucking company, and diesel prices increase, I will not less demand for diesel (for my routes must continue to exist in order for me to continue to stay in business). So the end result is that the cost of my services increase.

Labor works the same way as those examples above. Companies require employees in order to provide their services or produce their goods. They cannot profit without them. So instead of demand for labor decreasing, the more likely result is that the cost of services and goods increases.

Decreases in demand would initially only occur if the labor involved is not essential to maintaining production levels. However, the increased prices for goods and services could affect demand for those goods and services (mostly in the short-term, though, as the economy would eventually adjust to the new baseline cost of labor as it has every other time the minimum wage was raised). If the increased cost of those goods decreases demand for those goods, then the demand for production decreases and if the demand for production decreases, the demand for labor decreases.

That's a series of "ifs", however, thus making the answer of "depends" the most accurate one to the question of whether or not increasing the price of labor will decrease the demand for it. The supply part is unchanged and an increase in minimum wage prevents there from being any legal alternative cheaper labor. That has a major affect on the whole situation. Not to mention other cost cutting approaches which exist that can counter the increased wage prices (fast food restaurants often lower the quality of their ingredients in order to offset the increased labor costs so that production can remain constant and demand won't decrease since people who eat fast food are relatively unconcerned with quality anyway, for example)

cpwill said:

Currently the score is 31 to 2 in favor of labor existing on a supply / demand curve. So, if Labor follows the rules of Supply and Demand, then what happens when, all other things being equal the price of labor is raised?

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Yet actual studies have returned mix results.

It depends on whether the demand is elastic or inelastic.

Fisher said:

Because McDonald's needs a certain number of employees to operate whether they have to pay then $7.25 or $9.00 an hour. On the other hand, if the $1 menu becomes the $1.25 menu, people will buy fewer McDoubles because their products are more discretionary than the labor that produces it.+

Raising the minimum wage is largely a false economic promise because of what the bulk of minimum wage earners spend their money on, but we should do it anyway for the benefit of those who do actually have to survive on it and, hopefully, because it lifts people above the Earned Income Credit qualification tables.

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That is very weird logic. If you base the premise on gov't will make up the difference, then it makes no difference whether the employer or the gov't pays the "wage". Accepting the idea that a worker's skill set or output is not an issue then you end up with little incentive for folks to produce more or to acquire more skills.

Wages are based mainly upon the replacement cost of that worker; if the employer has, or can get, 10 (or more) qualified applicants for the job then the wages offered are about right. If an employer wishes to keep turnover low (retain a current worker) then that employee's wages should be increased a bit, making them less apt to shop around to find another job. The objective of the employer is to build a competent work force at the lowest cost, yet to paying enough to avoid constant turnover and (re)training costs.

Tucker Case said:

Because labor usually directly affects production, while goods are typically the result of production and do not directly affect production.

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.... really. So raw materials, energy, etc; these are all fictional? If my employees require food, then the food that they purchase does not fuel their production? If I have to ship my materials from the port to the factory, then the gallon of gasoline that I buy does not affect my production? My facilities, equipment, electricity, all my overhead.... none of this affects production?

At some point, most stuff goes back into supporting follow-on production. Sure, you have your entertainment goods (television doesn't really go back in to supporting production), but the majority of expenditures are on goods (housing, food, energy, transportation) that do.

If I need corn in order to make corn chips at my factory, my demand for corn will not be affected by the price of corn. The price of my product, however, will often go up to account for the increased price in order to maintain my profits.

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Actually there are several different venues for you here. You can (as you have suggested) raise the price of your product. Or you can purchase from another supplier who does not suffer under the same raised price floor. Or you can alter your mixture to reduce the corn percentage in your corn chips. Or you can fire low-skill workers and automate some of your processes. Or you can seek out a combination of any of these.

If I run a trucking company, and diesel prices increase, I will not less demand for diesel (for my routes must continue to exist in order for me to continue to stay in business). So the end result is that the cost of my services increase.

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Again, sort of. There are alternate means of transportation and you will likely begin to look at those, as well as looking at more fuel efficient means of powering your trucks.

Labor works the same way as those examples above.

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that is correct only in that you have consistently misrepresented the examples above, and labor. You are basically arguing that labor and these goods are completely price inelastic - that if we were to (for example) hike up the minimum wage to $1,000 an hour, McDonalds would duly keep the same number of employees and give them all commiserate raises instead of automating it's franchises and hiring a very few highly talented workers to run the software and hardware.

Companies require employees in order to provide their services or produce their goods. They cannot profit without them.

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Yes, but the number of employees that they require is not fixed. And so demand for labor can go down while companies continue production.

So instead of demand for labor decreasing, the more likely result is that the cost of services and goods increases.

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that can happen, but it is unlikely. Remember back when Congress last raised the minimum wage to $7.25? Did you notice how it was a couple of months after that that all those self-checkout lanes started popping up? Employees were no longer profitable on the margin, and so they were replaced with previously prohibitively expensive automation that was now cost-effective due to an artificial raising of a price ceiling on labor.

Decreases in demand would initially only occur if the labor involved is not essential to maintaining production levels

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True, the less necessary labor will be the first cut. Or it (and that involved in direct production) could be replaced with either alternative (say, foreign, or illegal) labor, automation, or some other alternative.

However, the increased prices for goods and services could affect demand for those goods and services (mostly in the short-term, though, as the economy would eventually adjust to the new baseline cost of labor as it has every other time the minimum wage was raised). If the increased cost of those goods decreases demand for those goods, then the demand for production decreases and if the demand for production decreases, the demand for labor decreases.

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This is the Henry Ford Fallacy. Increases in wages in and of themselves do not lead to an increase in demand because you have not increased the wealth inside the system. Increases in production lead to increases in demand.

Fisher said:

Because McDonald's needs a certain number of employees to operate whether they have to pay then $7.25 or $9.00 an hour.

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The number of employees that McDonalds needs is not fixed, but can fluctuate dependent upon their relative price to return.

On the other hand, if the $1 menu becomes the $1.25 menu, people will buy fewer McDoubles because their products are more discretionary than the labor that produces it.+

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All right, take that thought and follow it. Now, what happens to McDonalds employees if fewer people shop at McDonalds?

Raising the minimum wage is largely a false economic promise because of what the bulk of minimum wage earners spend their money on, but we should do it anyway for the benefit of those who do actually have to survive on it and, hopefully, because it lifts people above the Earned Income Credit qualification tables.

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and to screw over the poor people who are now structurally unemployed?

Fisher said:

Because McDonald's needs a certain number of employees to operate whether they have to pay then $7.25 or $9.00 an hour. On the other hand, if the $1 menu becomes the $1.25 menu, people will buy fewer McDoubles because their products are more discretionary than the labor that produces it.+

Raising the minimum wage is largely a false economic promise because of what the bulk of minimum wage earners spend their money on, but we should do it anyway for the benefit of those who do actually have to survive on it and, hopefully, because it lifts people above the Earned Income Credit qualification tables.

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Not so. McDonald's would be forced to raise their menu prices, which would lead to lower consumption of McDonalds. Lower consumption of McDonalds means they need fewer workers.

Besides, you cannot sit here and tell me that out of all the minimum wage jobs there are right now, employers can't find say 5-10% of them that they don't need. There is always waste to cut, and raising the minimum wage simply makes getting rid of that waste have a higher payoff.

cpwill said:

Currently the score is 31 to 2 in favor of labor existing on a supply / demand curve. So, if Labor follows the rules of Supply and Demand, then what happens when, all other things being equal the price of labor is raised?

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Who is "you" in your poll? I assumed "you" to be the one offering the wages, the employer. Obviously, if the employer offers higher wages (raises the price) they will attract more applicants, thus showing an increase in demand. Whether the workers applying are any better, i.e. can produce more for the employer, is the real question. Offering $1 per hour more will not necessarily attract many "better" applicants but will surely attract more of them.

I guess if you are willing to wade through a large applicant pool you could hope to find better workers, by raising your starting wage, but the pay strategy I find to work the best is to offer lower wages initially and quickly promote (give higher wages to) the employees that perform the best work or show the best potential to accept more responsibility.

The economy crashed around 2008. Demand for OIL dropped 30% and is still down. Did the price drop a commensurate 30%? You know the answer. Does that imply manipulation, control, monopoly, etc.? Any supply/demand issue must include complete analysis of possibilities or certainties of manipulation.

ttwtt78640 said:

That is very weird logic. If you base the premise on gov't will make up the difference, then it makes no difference whether the employer or the gov't pays the "wage". Accepting the idea that a worker's skill set or output is not an issue then you end up with little incentive for folks to produce more or to acquire more skills.

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I do not base it on logic but reality and that is what is happening in wide swaths of the population.

ttwtt78640 said:

Wages are based mainly upon the replacement cost of that worker; if the employer has, or can get, 10 (or more) qualified applicants for the job then the wages offered are about right. If an employer wishes to keep turnover low (retain a current worker) then that employee's wages should be increased a bit, making them less apt to shop around to find another job. The objective of the employer is to build a competent work force at the lowest cost, yet to paying enough to avoid constant turnover and (re)training costs.

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We are talking about minimum wage jobs here. The wage cannot go lower, so supply demand isn't really an issue as long as there are other who will work for minimum wage. The replacement cost of a minimum wage worker is minimum wage. Some employers do not care about employee turnover---it doesn't take that much insight, skills, or years of experience to do most minimum wage jobs.

Tucker Case said:

Because labor usually directly affects production, while goods are typically the result of production and do not directly affect production.

But if the goods in question do affect the production, demand is usually unaffected by price. If I need corn in order to make corn chips at my factory, my demand for corn will not be affected by the price of corn. The price of my product, however, will often go up to account for the increased price in order to maintain my profits. If I run a trucking company, and diesel prices increase, I will not less demand for diesel (for my routes must continue to exist in order for me to continue to stay in business). So the end result is that the cost of my services increase.

Labor works the same way as those examples above. Companies require employees in order to provide their services or produce their goods. They cannot profit without them. So instead of demand for labor decreasing, the more likely result is that the cost of services and goods increases.

Decreases in demand would initially only occur if the labor involved is not essential to maintaining production levels. However, the increased prices for goods and services could affect demand for those goods and services (mostly in the short-term, though, as the economy would eventually adjust to the new baseline cost of labor as it has every other time the minimum wage was raised). If the increased cost of those goods decreases demand for those goods, then the demand for production decreases and if the demand for production decreases, the demand for labor decreases.

That's a series of "ifs", however, thus making the answer of "depends" the most accurate one to the question of whether or not increasing the price of labor will decrease the demand for it. The supply part is unchanged and an increase in minimum wage prevents there from being any legal alternative cheaper labor. That has a major affect on the whole situation. Not to mention other cost cutting approaches which exist that can counter the increased wage prices (fast food restaurants often lower the quality of their ingredients in order to offset the increased labor costs so that production can remain constant and demand won't decrease since people who eat fast food are relatively unconcerned with quality anyway, for example)

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No that is a false premise. A single company may be more competitive then others by paying a higher wage, due to decreased turnover and attracting the best possible workers from that field.

Demanding increases in wages across the board does not provide any company an advantage over the other in terms of attracting workers, and is simply raising costs. Couple that with laws that strongly restrict employers ability to hire and fire as they so please, and what you have is the pandora's box of business.

People wonder why union membership is so low right now, its not because of anti union laws. Its business after business that was heavily unionized went bankrupt for this exact reason.

cpwill said:

The number of employees that McDonalds needs is not fixed, but can fluctuate dependent upon their relative price to return.

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But they still need a cashier, a cook, and someone to work the drive through if they are going to stay in business. A few jobs could be shed, but not most of them.

cpwill said:

All right, take that thought and follow it. Now, what happens to McDonalds employees if fewer people shop at McDonalds?

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See my response above

cpwill said:

and to screw over the poor people who are now structurally unemployed?

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Sure the bulk of those people are clearly going to go out and work for minimum wage if they are not working now :roll:

ReformCollege said:

Not so. McDonald's would be forced to raise their menu prices, which would lead to lower consumption of McDonalds. Lower consumption of McDonalds means they need fewer workers.

Besides, you cannot sit here and tell me that out of all the minimum wage jobs there are right now, employers can't find say 5-10% of them that they don't need. There is always waste to cut, and raising the minimum wage simply makes getting rid of that waste have a higher payoff.

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With the $2 an hour raise in the minimum wage, teenagers would be able to buy 2 more dollar menu items from McDonalds per hour they work and then they could hire more people.......see how that works---just depends

Tucker Case said:

Because labor usually directly affects production, while goods are typically the result of production and do not directly affect production.

But if the goods in question do affect the production, demand is usually unaffected by price. If I need corn in order to make corn chips at my factory, my demand for corn will not be affected by the price of corn. The price of my product, however, will often go up to account for the increased price in order to maintain my profits. If I run a trucking company, and diesel prices increase, I will not less demand for diesel (for my routes must continue to exist in order for me to continue to stay in business). So the end result is that the cost of my services increase.

Labor works the same way as those examples above. Companies require employees in order to provide their services or produce their goods. They cannot profit without them. So instead of demand for labor decreasing, the more likely result is that the cost of services and goods increases.

Decreases in demand would initially only occur if the labor involved is not essential to maintaining production levels. However, the increased prices for goods and services could affect demand for those goods and services (mostly in the short-term, though, as the economy would eventually adjust to the new baseline cost of labor as it has every other time the minimum wage was raised). If the increased cost of those goods decreases demand for those goods, then the demand for production decreases and if the demand for production decreases, the demand for labor decreases.

That's a series of "ifs", however, thus making the answer of "depends" the most accurate one to the question of whether or not increasing the price of labor will decrease the demand for it. The supply part is unchanged and an increase in minimum wage prevents there from being any legal alternative cheaper labor. That has a major affect on the whole situation. Not to mention other cost cutting approaches which exist that can counter the increased wage prices (fast food restaurants often lower the quality of their ingredients in order to offset the increased labor costs so that production can remain constant and demand won't decrease since people who eat fast food are relatively unconcerned with quality anyway, for example)

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Very well stated.

Is that the reason companies are offering their products...cereal or packages of cheese, for example, in reduced ounces while charging the same price as before? I don't understand how companies could be "pocketing" the difference when they have to pay a higher price for the raw materials to make their product in the first place. This seems to be a circular argument. What am I not getting here? :?

ReformCollege said:

Besides, you cannot sit here and tell me that out of all the minimum wage jobs there are right now, employers can't find say 5-10% of them that they don't need. There is always waste to cut, and raising the minimum wage simply makes getting rid of that waste have a higher payoff.

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Of course there's waste, but think for a second. What business is going to say "Well, $7.25/hr of waste is one thing, but $9/hr is too much?" If they're decent business people, they're going to cut waste, and if they're not then maybe they shouldn't be in business anyway.

Has anybody noticed that prices go up, but wages don't? Granted there are a lot of factors involved in that, but shouldn't the minimum wage go up with inflation? If you've ever worked minimum wage, you know that they'd pay you less if they could get away with it. They'd still raise prices, though, but you as a worker wouldn't see any of that.

cpwill said:

Currently the score is 31 to 2 in favor of labor existing on a supply / demand curve. So, if Labor follows the rules of Supply and Demand, then what happens when, all other things being equal the price of labor is raised?

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Is the question what do I "favor" happening or "what do I think" happens whether I want it to or not?

Fisher said:

With the $2 an hour raise in the minimum wage, teenagers would be able to buy 2 more dollar menu items from McDonalds per hour they work and then they could hire more people.......see how that works---just depends

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McDonalds workers probably make up a small % of McDonald's customer base. So everyone else buying less would overpower their own workers buying more, IF they even decide they want to buy more McDonald's with their hypothetical wage increase.

rocket88 said:

Of course there's waste, but think for a second. What business is going to say "Well, $7.25/hr of waste is one thing, but $9/hr is too much?" If they're decent business people, they're going to cut waste, and if they're not then maybe they shouldn't be in business anyway.

Has anybody noticed that prices go up, but wages don't? Granted there are a lot of factors involved in that, but shouldn't the minimum wage go up with inflation? If you've ever worked minimum wage, you know that they'd pay you less if they could get away with it. They'd still raise prices, though, but you as a worker wouldn't see any of that.

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No, because inflation should reduce the amount of people that are priced out of getting paid the minimum wage. Consider back in the 40s when the minimum wage was effectively removed due to inflation, a vast majority of even low skilled workers were paid above the minimum wage because it no longer factored into hiring decisions.