Presidential Address

[SlowwHand]

No thread? Are all of his supporters here standing in line for his autograph?

[Imran Siddiqui]

We don't need one. We got it with the check from the registered Republican's tax revenue we were personally receiving

[SlowwHand]

You got a thread? Fitting. So many need a lifeline by now and he's giving out threads.

[Imran Siddiqui]

The autograph, numbnuts.

[SlowwHand]

Express yourself a little more clearly, numbnuts.

[Uncle Sparky]

Stephanie Seymour. Numbnuts.

[Berzerker]

how about a minimum wage for the people picking our food?
might mean some lose their jobs and the food prices go up
but we need to give Americans a raise

[Imran Siddiqui]

Express yourself a little more clearly, numbnuts.

You can start by learning some reading comprehension. We keep telling you to do this every year, but I guess since you got that piss poor Texas education, we can't ask for miracles

[Ban Kenobi]

how about a minimum wage for the people picking our food?
might mean some lose their jobs and the food prices go up
but we need to give Americans a raise

That's socialist tyranny.

[Ben Kenobi]

I guess since you got that piss poor Texas education

White Texans do way better in TX than in GA.

[dannubis]

[Kidlicious]

How many lies did he tell? How many statements did he make?

[SlowwHand]

You can start by learning some reading comprehension. We keep telling you to do this every year, but I guess since you got that piss poor Texas education, we can't ask for miracles

I asked about a thread, not if you got an autograph.

how about a minimum wage for the people picking our food?
might mean some lose their jobs and the food prices go up
but we need to give Americans a raise

Read over this and think about what it says, Berz.

[kentonio]

Even many Republicans support a minimum wage rise. The only people who oppose it are corporate whores and people too retarded to spell their own name.

[Al B. Sure!]

At a very basic level, et ceteris paribus, a minimum wage is a price floor which reduces the quantity of labor demanded by employers (producing unemployment). The higher cost of labor will reflect in higher prices and/or a reduction in retained earnings, which are used to grow businesses.

However, because an economy is a complex system, there are many complications to this simple view that minimum wages produce unemployment and reduced economic growth. The price elasticity of demand for labor (the amount by which employers will reduce their need for labor based on the price of labor) varies by profession and industry. It is likely that high skill and/or low supply professions have low price elasticity of demand, such that even relatively large increases in the cost of labor will not reduce the quantity of labor demanded by employers. However, because of the abundance of substitutes for the majority of low skill labor, including other potential employees, under-the-table employees, illegal immigrants, outsourcing, and automation, the majority of low skill labor can be expected to have a fairly high price elasticity of demand. In other words, if a low skill employee costs too much, employers will attempt to replace him with a cheaper substitute and will reduce further employment of labor at that price point.

An added complication is that a minimum wage affects more than low skill laborers. Now, you may think only low skill employees are paid minimum wages so how could this be? This is because of an anchoring effect. With higher minimum wages for the low skilled, the next tier of employees will require and receive a slightly higher compensation, and so forth. It's very easy to see this. If a typical fast food supervisor makes $10/hr and the minimum wage rises to $10/hr, he cannot possibly continue to make the same amount as his subordinates. His wage will increase as would the salary of the general manager and so forth. This change is likely not a 1:1 % change and it will vary by job and industry.

So everyone gets richer from a minimum wage? Yes and no. With increased labor costs, as stated before, businesses will have to increase prices and/or reduce retained earnings. The same inflationary pressure in the simple model occurs here but is amplified by the increase in wages for all employees, not simply the low skill employees directly affected by the minimum wage. However, despite an increase in prices and unemployment, the purchasing power of most employees would actually increase, making most employees richer.

You can see this very simply in the following example: suppose a business has a labor cost that is 20% of sales; in other words, the business spends 20 cents to produce every dollar in revenue. An increase of 10% to salaries would increase labor cost to 22% of sales, assuming sales are static (ie- assuming employees are not more productive or motivated to work with a 10% higher salary). To offset this increase in costs, businesses would have to increase prices approximately 2% (it's not exactly 2% but the math is needless). So employees will actually be richer. A 10% increase in salaries produces a 2% increase in prices in this single product economy.

Of course, most products have inputs so a 2% increase in the price of a product will be included in the price of a derivative of that product as well as the 2% increase for the price of that derivative product itself. Very simply, if metal prices go up 2%, car prices will go up more than 2% (2% increase from the higher cost of labor plus the increase in the cost of metals).

However, for the most part, most employees, and certainly the very low skill employees, will have increased purchasing power even despite the price inflation. This will allow them to purchase more goods and services, driving up revenue for businesses and returning business growth seemingly lost with the minimum wage. This growth may even help reduce the unemployment effect. So while it may seem like, due to the abundance of substitutes for low skill labor, that low skill laborers will suffer from increased unemployment but those who are employed will have greater purchasing power, the unemployment effects given by the simple model of price floors may be a bit over-stated.

This may explain the Card and Krueger study which showed not only no increase in unemployment following a minimum wage increase, but an actual increase in employment.