Minimum wage and Fast Food
The graphic says it all. Fast Food would become a luxury and all it would do is drive up more unemployment - and automation.
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It has always been a bad idea and another stupid encroachment of government into free markets.
The next thing they will do is tax robots so they continue to be more expensive than humans. Crazy.
I would rather order from a robot anyway, so bring em on. I dont know why we dont have robot order takers anyway. Must be that workers are still cheaper than the robots at the current minimum wage. I hope the line is crossed so we get rid of inefficient order takers who cant even listen when I order.
Many employers will go out of business, raise the prices, replace workers with robots, or worse, raise prices until they replace the workers with robots and once replaced, maintain the price increases. Neither the entry level worker nor the consumer will benefit. Inflation will adversely affect all. The government has one benefit; it can benefit by paying off debt with deflated dollars. Some would call that a perverse incentive... Unfortunately consumers always foot the bill. http://kahlerfinancial.com/financial-...
Respectfully,
O.A.
Yes. The dragon (inflation) raises its ugly head. I would also note that government can only do this with fiat currency - which is why they first agitate for such and now for all-digital currency.
Artificially setting a minimum wage is literally saying that one is redefining the amount of money to be allocated to a fixed unit of work, like flipping a burger. It is changing the monetary representation of that item of labor arbitrarily. But the underlying unit of work has not changed one iota. Demand has not changed, nor has supply.
This is why automation drives down prices. You are replacing a unit of work normally performed by a person by a unit of work performed by a machine. Machines aren't subject to wage laws: they do exactly the work assigned in fixed increments which aren't subject to redefinement of monetary pricing. This is recognized by the companies who are turning to automation to replace their human workers.
All minimum wages are bad. See Milton Friedman (https://youtu.be/ca8Z__o52sk) or Thomas Sowell (https://youtu.be/6TGkfjaxFWs) for more in depth explanations.
And labor is not an absolute amount. If you and I dig identical ditches, each of us will expend a different amount of time and effort doing so. The result will be identical, the labor that achieved it will not.
That's classic Adam Smith: Wealth of Nations. Now you'll have some like dbhalling on this forum who disagree with this notion, but Friedman and Sowell both adhere to Smith's use and so do I.
"If I provide you with a good or service and accept your gold, dollars or other money in return, I couldn’t care less how much or how little of your labor (or anyone else’s) was expended to earn that dollar."
Not true, because you are relying on the use of that dollar to purchase something else. If I handed you a dollar of Monopoly money instead of a greenback, what is the real difference? They're both paper... What's the difference between a Euro and a Yen or Yuan or Rupee?
"If you and I dig identical ditches, each of us will expend a different amount of time and effort doing so."
Perhaps, but the end result is still a ditch. If you can do so faster than I can, you can use the extra time you saved to pursue other options that my inferior rate of work prohibits. If you can dig a deeper ditch or a ditch with lined walls in the same amount of time and effort it takes me to dig a basic ditch, the quality of your ditch may be superior to mine and therefore of higher value to the customer. But if I hire you to dig a ditch and then I sell that property, I can't really take the ditch with me. I can, however, take the money that ditch represented as I sell the improved property for a higher price - a price which includes the value of the ditch.
It has become generally accepted that Adam Smith abandoned a labor-embodied theory of value and argued a cost-of-production theory to explain value under capitalist exchange relations. In his History of Economic Analysis, Schumpeter states:
. . . in Book I, Chapter VI, A. Smith expressly states: Wages, profit, and rent are the three original sources of all revenue as well as of all exchangeable value. If words mean anything, this is conclusive. His theory of value was what later on came to be called a cost-of-production theory. This is indeed the opinion of many students (1961, p.309).
http://www.hetsa.org.au/pdf/31-A-1.pdf
Adam Smith accepted the theory for pre-capitalist societies but saw a flaw in its application to contemporary capitalism. He pointed out that if the ‘labor embodied’ in a product equaled the ‘labor commanded’ (i.e. the amount of labor that could be purchased by selling it), then profit was impossible.
https://en.wikipedia.org/wiki/Labor_t...
Please provide an actual quote from Friedman or Sowell endorsing your definition of money as a representation of labor.
The fact that I am “relying on the use of that dollar to purchase something else” has nothing to do with how much the previous owner’s labor was expended to earn that dollar.
In the ditch example, the ditch does not “represent” a fixed amount of money. Its resale value is solely the value that the highest bidder assigns to it, assuming anyone values it at all.
"The fact that I am “relying on the use of that dollar to purchase something else” has nothing to do with how much the previous owner’s labor was expended to earn that dollar."
Yes, it in fact does, because caeteris paribus (all other things being equal), if they are not the same there is greatly diminished value in savings and investment. We see extreme examples of this during periods of hyperinflation when overnight the "costs" of goods doubles or triples. Any money that was retained from yesterday's labors now lose tremendous value even though only one thing has really changed: the value of money from one day to the next. Whether inflation happens overnight or over the course of many years, it is still destructive in its forces. And this is precisely why the government encourages inflation: because it devalues savings giving them control over money AND it devalues debt, allowing them to pay less than they would otherwise for goods and services.
"In the ditch example, the ditch does not “represent” a fixed amount of money."
I never said it did. I said it represented a fixed amount of labor which was equivalent to a certain value. That the amount of money necessary to represent that value changes from one day to the next isn't a criticism of the value of the work, but a criticism of the value of the money itself.
Again, please provide an actual quote from Friedman or Sowell endorsing your definition of money as a representation of labor.
Inflation destroys money regardless of how you define it, but it has nothing to do with the amount of labor expended to earn it. To an equal extent, inflation destroys a dollar earned by a minimum wage worker and a dollar earned as interest on a billionaire’s fortune. A dollar is not a token signifying the amount of work the previous owner did, or the amount of someone else’s labor it entitles you to. You cannot tell by examining the dollars in your wallet the amount or type of labor the previous owners put in to obtain them, and such considerations do not affect your financial situation in any way.
In the ditch example, the ditch does not represent a fixed amount of labor either. The value of the ditch, in dollar terms or otherwise, cannot be computed by the amount of labor that went into its creation. Once the ditch is completed, its value is whatever the highest bidder thinks it’s worth, and even with a stable money supply, that value will change over time with changes in consumer preferences and changes in the surrounding economic environment.
I agree a wage floor causes increased prices in labor-intensive goods/services whose demand curve is inelastic. If you call this "inflation", I agree. But it doesn't affect non-labor-intensive and things with inelastic demand curves, so I don't call it inflation.
(Just a technical note, but supply/demand curves are neither elastic nor inelastic. Elastic/inelastic apply to the goods themselves, with an inelastic good having a curve marked by a very wide, flat area of operation and an elastic good having a curve marked by a much more narrow range of operation and steeper slope.)
That being said, I'm glad we agree that wage floors cause increased prices and that this constitutes inflation. What I disagree on is that the relative elasticity of the good matters as to whether or not inflation is in fact in action. If your case holds, I would ask at what point in difference between elastic and inelastic goods does inflation apply or not apply?
"But it doesn't affect non-labor-intensive and things with inelastic demand curves, so I don't call it inflation."
If the "price" of something goes up without a corresponding uptick in demand or downtick in supply, it is by definition inflation - an arbitrary (i.e. non-market-driven) cost increase (dictionary: "a general increase in prices and fall in the purchasing value of money). Deflation is the reverse: a non-market-driven cost decrease - usually a corrective effect to past inflation.
What you are actually arguing is a matter of degrees rather than absolutely presence/absence. Your argument is that there is a certain amount of wage increase which is acceptable to you even though it is inflationary. I take the stance that all inflationary increase is unacceptable.
In every component of labor, i.e. work, there is a fixed cost amount and a variable cost amount. When we compare human labor to automated labor, what we are in fact doing is comparing the relatively large fixed labor costs of creating an automated solution together with the relatively low variable costs of operation and maintenance against the relatively small labor costs of hiring and employing a person together with relatively high variable costs of operation and maintenance. When you draw these two lines in comparison to each other for increasing levels of output, at some point you will find a break-even point for which a certain level of output becomes economic one way or the other. Minimum wage laws arbitrarily shift these lines and create a new equilibrium point based on the new variable cost of labor, but that cost is always higher than it was for no other reason than the presence of the law - not as the result of real market forces, e.g. inflation.
Downstream, however, these costs must be justified by increases in the prices of goods or the business fails the generate the profit necessary to maintain the business venture. What also happens is that people who at one point only had a minimal income now (temporarily) find themselves with more money to spend, but what we see as time goes on is that the market adjusts to this additional availability of money by increasing prices across the board and devaluing the money's purchasing power. So while people are in fact making more money, that money's value as it is used to acquire other goods is eroded as a result (inflation) and their future state is no better than their present one. They may see a temporary bump - if they can find employment at all - but even that bump soon disappears. And the inflated costs of labor simply put more people out of the workforce (see Friedman and Sowell).
A classic example of inflation can be seen very readily in California. Why? Proliferation of arbitrary rules and regulations (read government interference) which inflate the costs of goods and services there. Home prices are a classic example, but one can also see it in grocery prices.
This would make sense if most value came from labor affected by min wage laws. Most value comes from investment and work no affected by min wage.
So instead of your scenario where people get a bigger paycheck but it doesn't go as far, the result is some low-wage people can't find jobs. The people who keep the min wage jobs have more spending power, but they have less job security because there's a larger pool of unemployed people would would be eager to have their job.
All value is affected because we value a thing in relation to other things. Why are unique works of art literally "priceless"? Because they have no substitute or comparison. Valuation of such becomes nearly impossible because then one is valuing the uniqueness or novelty of something rather than the innate worth.
"So instead of your scenario where people get a bigger paycheck but it doesn't go as far, the result is some low-wage people can't find jobs."
The scenario I presented applies to those who still manage to find work at the adjusted values. You correctly point out that there is another distinct population which gets excluded from the workforce at all.
"The people who keep the min wage jobs have more spending power, but they have less job security because there's a larger pool of unemployed people would would be eager to have their job."
Absolutely, but this is somewhat tempered by the fact that the employer can't just go hire someone at a lower wage to compete. Instead, what happens is that those who are most skilled end up getting the jobs and those least skilled (or unskilled, like teenagers) can't even break into the market at all. It creates a permanent black market class who naturally drift to illicit activities such as gangs and drugs.
That's the end result of it. Note that drugs are another example, just like the minimum wage, of keeping willing buys and sellers apart. Gangs are the crappy informal system of enforcing agreements when people can't use the courts.
I agree with everything you're saying about the outcome.
"If the "price" of something goes up without a corresponding uptick in demand or downtick in supply,"
When you say uptick or downtick, are you talking about the supply/demand curves, or moving along a fixed supply/demand line? A min wage does not change the supply or demand curve. It's just keeps would-be buyers and sellers apart.
"Your argument is that there is a certain amount of wage increase which is acceptable to you even though it is inflationary."
Sorry if I'm confusing. I did not mean to say anything like that.
"Minimum wage laws arbitrarily shift these lines and create a new equilibrium point based on the new variable cost of labor"
In my way of thinking, the lines don't shift. I say the law causes a market failure where the market is out of equilibrium, which is to say there are surpluses, i.e. people wanting work and wanting hire but the law won't let them.
We're saying almost the same thing, but I don't call it "inflation".
Just so you know, a supply/demand curve actually plots three separate things: Supply for an item, demand for that same item, and a specific price point. Any given curve will have a price point at which suppliers stop producing a product and a price point at which consumers will stop purchasing a product, which is why all we see is a section.
The point I was making here is that there is movement along a supply/demand curve in response to an increase or decrease in either supply or demand. This movement is according to standard market forces. There is a second kind of movement, however, which is where the entire curve itself shifts due to some kind of force external to supply or demand, such as government interference through the institution of a minimum wage. The curve itself is forced out of its natural market position. One of the effects may be that, yes, it prevents some buyers and sellers from coming together, but this is separate and apart from the fundamental shifting of the curve itself.
"In my way of thinking, the lines don't shift. I say the law causes a market failure where the market is out of equilibrium, which is to say there are surpluses, i.e. people wanting work and wanting hire but the law won't let them."
Markets change and adjust according to both internal(market) forces and external forces such as government and innovation. If markets are allowed to work, they will always find a point of equilibrium and stability. The question is whether or not that equilibrium point is reached as a result of market forces or non-market forces. When only market forces are allowed to operate, the result is the most efficient use of both labor and resources. Any introduction of outside forces (taxes, wage floors, regulations, etc.) artificially move/re-shape the supply/demand curve itself.
It's a price floor. There's some equilibrium price where everyone who wants that type of labor can buy it at the market price. If we set a price floor higher than the equilibrium price, there's some "surplus": people wanting to supply labor and people wanting to buy labor, but they can't because they can't pay the minimum wage. So someone's sitting home wanting a job while someone's business is not at full capacity, but they can't come together unless they do an illegal under-the-table cash deal. https://en.wikipedia.org/wiki/Price_f...
This actually doesn't cause inflation, where sellers of everything feel confident raising prices and buyers feel confident paying it. It may actually reduce inflation, but this is not a good thing.