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Income Inequality?

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  • Maybe he can't detect obvious sarcasm?
    "As for my people, children are their oppressors, and women rule over them. O my people, they which lead thee cause thee to err, and destroy the way of thy paths." Isaiah 3:12

    There is no such thing as innocence, only degrees of guilt.

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    • Originally posted by Darth Executor View Post
      Maybe he can't detect obvious sarcasm?
      Are you being sarcastic?
      The first to state his case seems right until another comes and cross-examines him.

      Comment


      • Originally posted by Zymologist View Post
        I 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?
        A 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.
        Don't call it a comeback. It's a riposte.

        Comment


        • Originally posted by Spartacus View Post
          Have you ever studied microeconomics? How about algebra? A working of knowledge of either would be sufficient to explain why your question is so nonsensical.
          One of my economics professors had an accent that made both microeconomics and macroeconomics sound like mecroeconomics. He would get frustrated and say, "Not mecroeconomics but mecroeconomics!" I finally suggested that he write an "A" and an "I" on the blackboard and point to the appropriate one.

          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

          Comment


          • Originally posted by Cow Poke View Post
            Are you being sarcastic?
            You are becoming outcreasingly outsufferable

            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

            Comment


            • Originally posted by Spartacus View Post
              A 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.
              But you're close enough. In the Real World, the relationship is even more complex, because even in minimum wage jobs, one labor-hour isn't the same as another. It was too widely publicized to miss that in the Great Recession, businesses reduced their labor forces beyond what had been considered "fat", biting deep into what had been considered muscle. They were able to do this because jobs became so scarce that the threat of losing one's job inspired workers to become several times more productive. Not just working longer hours, but moreso spending their time working, rather than surfing for porn or whatever. Many businesses made drastic cuts in their employees, increased nobody's hours, and saw no drop in total productivity. The result was years of record-setting profit margins!

              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.

              Comment


              • 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.

                Comment


                • Originally posted by Sparko View Post
                  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%.
                  Only 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?"
                  Don't call it a comeback. It's a riposte.

                  Comment


                  • Originally posted by Spartacus View Post
                    Only 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?"
                    so 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)

                    Comment


                    • Originally posted by Sparko View Post
                      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%.
                      And labor is one of the very FEW variable/controllable costs -- franchise fees, costs of goods, utilities... there are many things over which you have little or no control, so labor is the first thing to get cut.
                      The first to state his case seems right until another comes and cross-examines him.

                      Comment


                      • Originally posted by Spartacus View Post
                        A 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.
                        That 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.
                        I DENOUNCE DONALD J. TRUMP AND ALL HIS IMMORAL ACTS.

                        Comment


                        • Originally posted by Sparko View Post
                          so 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)
                          Let's start with CEO pay.
                          Don't call it a comeback. It's a riposte.

                          Comment


                          • Originally posted by Zymologist View Post
                            That 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.
                            I successfully communicated a point over the Internet? Never thought I'd see the day!
                            Don't call it a comeback. It's a riposte.

                            Comment


                            • Originally posted by Spartacus View Post
                              I successfully communicated a point over the Internet? Never thought I'd see the day!
                              He didn't say he bought it -- just that you were verbose!
                              The first to state his case seems right until another comes and cross-examines him.

                              Comment


                              • Originally posted by Sparko View Post
                                That 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.
                                Labor costs are negligible compared to materials because of automated processes. An enormous volume of product can be produced with only a handful of people.

                                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.
                                I agree. I just don't see why they would cancel each other out.

                                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.
                                So you're saying that there's a job that can only exist if the salary is below minimum wage? That doesn't make sense to me. If a job is available, it should be necessary to the business. The business is interested in hiring someone to do the job competently (at least) at the lowest expense possible. If minimum wage exists, and the skill level is low, then that expense is minimum wage.

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