Maybe he can't detect obvious sarcasm?
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Income Inequality?
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Originally posted by Darth Executor View PostMaybe he can't detect obvious sarcasm?The first to state his case seems right until another comes and cross-examines him.
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Originally posted by Zymologist View PostI haven't studied microeconomics, but I have studied algebra (though I'm rusty). I'm not sure what you're getting at, though. Could you explain?
Let's say a business with 5 employees makes 500 products a day which it sells for $10 apiece for a total of $5000/day revenue. The laborers make $10 an hour and work for 10 hours (for the sake of having nice round numbers to start with). The overall cost of labor is $500 a day, the cost of labor per unit of output is $1.
If we double the workers' hourly wage from $10 to $20, then they take home $1000/day instead of $500. The cost of labor per unit becomes $2, assuming productivity remains constant. Let's assume that the owner raises the price to compensate for the increased cost of labor while keeping the amount of money dedicated to other costs constant-- that is, the business took $4000, and wants to continue to do so (it wouldn't work quite like this, but let's keep it simple). The price of the product becomes $11. We've doubled the wage, but increased the price of the product by only 10%.
But let's increase the workers' wage to $40: suddenly, they're taking home a total of $2000 a day, or $4 per unit. If we raise the prices to compensate so that the company still gets $4000 to cover other costs, we need an overall revenue of $6000. If we're still making 500 units, that means we need to sell them at $12 apiece now. Quadruple the wage, and you've increased the price by 20%.
Of course, the proportion of cost of labor to overall price may differ from business to business, and increasing the minimum wage could increase other costs as well, but the relationship between hourly wage and the price the consumer pays is not 1:1-- it depends on how much of the cost of the product is cost of labor.
I didn't explain this as well as I could have-- I haven't taken math since high school, and my economics is almost as rusty.Don't call it a comeback. It's a riposte.
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Originally posted by Spartacus View PostHave you ever studied microeconomics? How about algebra? A working of knowledge of either would be sufficient to explain why your question is so nonsensical.
I'm always still in trouble again
"You're by far the worst poster on TWeb" and "TWeb's biggest liar" --starlight (the guy who says Stalin was a right-winger)
"Overall I would rate the withdrawal from Afghanistan as by far the best thing Biden's done" --Starlight
"Of course, human life begins at fertilization that’s not the argument." --Tassman
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Originally posted by Cow Poke View PostAre you being sarcastic?
I'm always still in trouble again
"You're by far the worst poster on TWeb" and "TWeb's biggest liar" --starlight (the guy who says Stalin was a right-winger)
"Overall I would rate the withdrawal from Afghanistan as by far the best thing Biden's done" --Starlight
"Of course, human life begins at fertilization that’s not the argument." --Tassman
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Originally posted by Spartacus View PostA Quadruple the wage, and you've increased the price by 20%.
Of course, the proportion of cost of labor to overall price may differ from business to business, and increasing the minimum wage could increase other costs as well, but the relationship between hourly wage and the price the consumer pays is not 1:1-- it depends on how much of the cost of the product is cost of labor.
I didn't explain this as well as I could have-- I haven't taken math since high school, and my economics is almost as rusty.
Bottom line: the average employee doesn't carry his weight, and can't carry it because the actual workload isn't sufficient. During good times, big businesses tend to "stockpile" promising but currently unneeded people, just in case. These people might spend years doing token or noncritical tasks until sometimes increased business means they get assigned real work, or decreased business makes them expendable.
So during the Great Recession, prices drifted downward a bit (and economists worried about deflation), while labor costs decreased hugely. The relationship between labor cost and retail price is as elastic as warm taffy.
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Also, doubling wage doesn't just double labor costs. There are a lot of other expenses involved in paying wages: Local, State and Federal payroll taxes... social security...medicare... state and federal unemployment insurance... worker's comp insurance... etc. All which go up when you raise someone's wages. So doubling someone's wage could actually triple (or more) your labor costs. And smarticus purposefully came up with an example with a low labor cost to start with. Usually labor is a much larger chunk of the cost of production than 1/10. For example, doing a little research I see that the average labor cost at a fast food restaurant is around 30%.Last edited by Sparko; 10-22-2014, 07:25 AM.
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Originally posted by Sparko View PostAlso, doubling wage doesn't just double labor costs. There are a lot of other expenses involved in paying wages: Local, State and Federal payroll taxes... social security...medicare... state and federal unemployment insurance... worker's comp insurance... etc. All which go up when you raise someone's wages. So doubling someone's wage could actually triple (or more) your labor costs. And smarticus purposefully came up with an example with a low labor cost to start with. Usually labor is a much larger chunk of the cost of production than 1/10. For example, doing a little research I see that the average labor cost at a fast food restaurant is around 30%.
The point, once again, was to respond to Zymo's question about "why don't we raise the minimum wage even higher if a small increase is such a clearly good thing?"Don't call it a comeback. It's a riposte.
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Originally posted by Spartacus View PostOnly 30%? Cool. That's actually a bit lower than I thought it might be for that industry, though I never specified what industry the business in question belonged to. That said, raising the minimum wage could affect more than one stage of the production process-- not just the finished product, but everything that goes into making it.
The point, once again, was to respond to Zymo's question about "why don't we raise the minimum wage even higher if a small increase is such a clearly good thing?"
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Originally posted by Sparko View PostAlso, doubling wage doesn't just double labor costs. There are a lot of other expenses involved in paying wages: Local, State and Federal payroll taxes... social security...medicare... state and federal unemployment insurance... worker's comp insurance... etc. All which go up when you raise someone's wages. So doubling someone's wage could actually triple (or more) your labor costs. And smarticus purposefully came up with an example with a low labor cost to start with. Usually labor is a much larger chunk of the cost of production than 1/10. For example, doing a little research I see that the average labor cost at a fast food restaurant is around 30%.The first to state his case seems right until another comes and cross-examines him.
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Originally posted by Spartacus View PostA modest increase in the minimum hourly wage might have a small, even negligible effect on the cost of production and therefore the price (while having a HUGE positive effect on the quality of life of the empoyees), while a huge increase would have a much bigger effect. The hourly wage is one variable in the equation that gives us the price of the product.
Let's say a business with 5 employees makes 500 products a day which it sells for $10 apiece for a total of $5000/day revenue. The laborers make $10 an hour and work for 10 hours (for the sake of having nice round numbers to start with). The overall cost of labor is $500 a day, the cost of labor per unit of output is $1.
If we double the workers' hourly wage from $10 to $20, then they take home $1000/day instead of $500. The cost of labor per unit becomes $2, assuming productivity remains constant. Let's assume that the owner raises the price to compensate for the increased cost of labor while keeping the amount of money dedicated to other costs constant-- that is, the business took $4000, and wants to continue to do so (it wouldn't work quite like this, but let's keep it simple). The price of the product becomes $11. We've doubled the wage, but increased the price of the product by only 10%.
But let's increase the workers' wage to $40: suddenly, they're taking home a total of $2000 a day, or $4 per unit. If we raise the prices to compensate so that the company still gets $4000 to cover other costs, we need an overall revenue of $6000. If we're still making 500 units, that means we need to sell them at $12 apiece now. Quadruple the wage, and you've increased the price by 20%.
Of course, the proportion of cost of labor to overall price may differ from business to business, and increasing the minimum wage could increase other costs as well, but the relationship between hourly wage and the price the consumer pays is not 1:1-- it depends on how much of the cost of the product is cost of labor.
I didn't explain this as well as I could have-- I haven't taken math since high school, and my economics is almost as rusty.I DENOUNCE DONALD J. TRUMP AND ALL HIS IMMORAL ACTS.
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Originally posted by Sparko View Postso doubling the labor wages could increase the labor costs to 60-75% of the product. Which means they would need to raise prices or cut back somewhere else, like the quality of the product (maybe the size of the patty, or adding in fillers, or automating more of the production so they can use fewer laborers)Don't call it a comeback. It's a riposte.
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Originally posted by Zymologist View PostThat would answer my question, then. I asked it because I've never seen anyone get into what you've described above when it comes to whether and how much to raise the minimum wage.Don't call it a comeback. It's a riposte.
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Originally posted by Spartacus View PostI successfully communicated a point over the Internet? Never thought I'd see the day!The first to state his case seems right until another comes and cross-examines him.
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Originally posted by Sparko View PostThat you just assume that labor costs are negligible in the COGS shows that you don't understand the first thing about manufacturing or economics, so what evidence could I give you that would convince you? The labor costs vary from product to product, but they are always there and not negligible unless you are not paying wages at all.
Common sense should tell you that labor costs going up will cause the price of a product to go up. I can't teach you common sense.
and Homer would be happy if he were being payed more. But he would rather be payed less and have a job, than be paid nothing and not have a job. $6/hour covers his expenses and he is willing to work for that. He and the employer agreed on that and so he has a job and the employer has an employee. Both are satisfied. If one becomes dissatisfied with the arrangement, they can end it. The employer can lay Homer off, or Homer can go find another job that does satisfy his requirements.
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