General Question

Christina070's avatar

Would a wage increase affect aggregate demand or supply?

Asked by Christina070 (106 points ) May 28th, 2012

If labor receives a large wage increase, would this mean it affects the aggregate supply or the aggregate demand of the nation? Or both?

Because an increase in wages could mean an increase in disposable income, leading to more consumption, which then again makes the aggregate demand curve shift to the right. Or am I wrong?

An increase in wages could also mean that the costs of production goes up, causing the aggregate supply curve to shift to the left.

So, my question is: does a large increase in labor wages affect AD or AS? Or both? I’m confused since this increase could be a determinant of both.

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54 Answers

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PhiNotPi's avatar

I don’t know much about economics, but the third option is that the effects might cancel out, meaning no change.

Christina070's avatar

I have read the whole chapter, but I just wondered if a large wage increase has an effect on AS or AD, or both, because it does not mention this specifically in the book.

ETpro's avatar

More disposable income in consumers pockets is the ONLY thing that will substantially drive up demand. Tax and entitlement policies that take money away from the middle class to give it to those already very wealthy will NEVER solve a demand side problem, it will make it far worse. Supply goes up when demand goes up. It’s NEVER a leader of demand. Nick Hanauer’s TED Talk was too political for TED to post, but if you listen to the brief video here, you will see that Supply Side Economics is just some smoke and mirror crap dreamed up to make the greed of a few would-be Oligarchs sound like sensible economic policy.

Response moderated (Off-Topic)
zenvelo's avatar

Think about what happens if you have more money to spend – do you demand more or supply more? That’s preliminarily the answer to your question.

But if wages go up without any increase in productivity, then there are no more goods supplied, so what happens then? How do supply and demand get back in equilibrium? As workers with more wages compete for the same number of goods, they compete by paying more. So prices go up until supply and demand are in equilibrium again. And chances are demand for # of goods is the same as before the wage increase, just at a higher price.

CWOTUS's avatar

To answer your question (yourself), think about what happens when people have more money in their pockets.

There is your answer.

(Of course, the question is posed in the perfect vacuum of an economics text in which a “wage increase” falls out of the sky like manna. If you ask yourself what enabled the wage increase, then you might also have the answer to something else, which you haven’t asked yet.)

wundayatta's avatar

People have more money, so they can afford to buy more. However, things cost more to produce, so they cost more. In the absence of productivity increases, you just get inflation. The same stuff costs more and people buy the same amount.

However, if you have productivity increases, then people have more money to spend, but the cost of goods doesn’t go up. So consumption increases. Demand increases. More people get hired to produce more stuff, and the economy starts improving.

JLeslie's avatar

Seems to me if wages increase demand increase. Supply could increase to meet demand. There might simply be a smaller profit margin with higher wages, but with the increase in demand and total revenue that might be ok, businesses still might be doing better even with a smaller profit per item. If the suppliers want to acheive the same profit per widget, then they might raise prices, depending on what the market can bear, demand might still be up.

I think higher wages matter most for those with very little discretionary income. They will move the economy most when given more money.

ETpro's avatar

@JLeslie Precisely so. That’s why putting the unemployed to work on repairing or building infrastructure is such effective stimulus. It puts diosposable income in pockets that formerly had none, and that have pent-up demand. And it maintains and/or builds the support structure upon which the whole economy moves.

JLeslie's avatar

@ETpro I think one of the biggest problems America has gone through in the last 20 years is the demand was false. It was demand on credit, the money was not really there. When that started to fall apart, it writes as a downturn in markets, but in some ways it is going down to where it would have been if the demand was based on real numbers.

I agree infrastructure makes sense, as long as it is done in a logical way. Infrastructure is better than paying through social service benefits while people are out of jobs. But, it is more than that. The greed that is being encouraged needs to be tempered, it is too extreme, too many people are having trouble keeping their heads above water.

ETpro's avatar

@JLeslie Agreed on all counts. The real estate boom was created to turn housing into apparent ATMs just to give the illusion of a robust economy when it did not exist. Take out the real estate boom and paper profits of the $72 trillion per year derivatives market it created, and you have a real GDP which was dropping throughout the Bush years.

JLeslie's avatar

@ETpro Not just real estate, but of course that was a huge contributor. People charge up their credit cards to the hilt and pay the minimum. Just a few cards can be $50k in debt easily. I saw a stat 5 years ago that about 40% of people pay off their credit cards in full every month. I was shocked it was that high, but still that is 60% of the people in debt, and paying a fortune in interest. A certain percentage of those people might have extreme circumstances where the debt is justified, but all too many of them just live outside of their means, when they have plenty of money to live on, or don’t understand how much the interest is costing them.

Nullo's avatar

@ETpro Nevertheless, raising minimum wage would likely result in minwage employers firing people to keep their costs down.

JLeslie's avatar

@Nullo Do you agree with employers firing people and overworking them to make huge profits? Do you think it would be better for the economy if the profits were lower (still profitable) and minimum wage workers made more money?

ETpro's avatar

@Nullo Why not make everything perfect. Take all the money from the poor and middle calss and gove it all to the “Job Creators” (sinister like The Creator) and watch the eeconomy roar when trickle-down finally takes full effect.

monorob's avatar

@Christina070,

Demand drops and supply increases. If the employer increases the wage above the equilibrium wage, workers will be willing to work more hours then what is demanded by the employer causing a surplus of labor (unemployment) which means demand will fall because there will be less available jobs at that price floor (companies will cut back on employment and are not going to hire unskilled workers or those with little/no experience). The larger unskilled work force will find themselves unemployed or out of the labor market. Since the increase in wages becomes more of a cost burden for the employer, those few who enjoy the wage increase will find themselves working fewer hours (demand drops). Chart

ETpro's avatar

@monorob Nice try at supply side justification, but workers don’t determine how many hours they work, management does. Thus your whole rationalization for taking form the poor to give to the rich crumbles. We have tried it. In every instance it failed. Russia tried it. It led to horrible conditions and a return to totalitarianism. Europe has tried it and slid into a bouble-dip recession. That chart is not drawn for the real world but from some justicied thought by a bunch of PhDs paid to find reasons to steal from the poor and give to the rich

monorob's avatar

First of all this is universally taught in the first week of every econ101 class, basic stuff. Secondly, what I mentioned is the consequence of not adhering to supply and demand, not supply side. I’m not sure how you interpreted it as supply side. Normally, workers and employers will continue to adjust the quantity of labor supplied according to price until the quantity of labor demanded is equal to the quantity of labor supplied, reaching equilibrium price, where the supply and demand curves intersect. There is a wealth of evidence showing the harmful result of artificial wage increases (not adhering to supply and demand mechanics).

ETpro's avatar

@monorob Could you link me to that evidence? Because while it’s obvious that wild gyrations in labor price would be harmful to any economy, the increases in minimum wage we have seen in the US have had just the opposite effect.

monorob's avatar

The link was already provided.

monorob's avatar

@Christina070

Nice animated video for newbies on this topic. Edgar the Exploiter

monorob's avatar

Take a look at Georgia. It’s unique because it has the 3rd lowest minimum wage in the country and yet the unemployment rate is high – currently 8.9%. Why is that? Well In recent years they had a $2.10 increase in minimum wage, currently at $5.15. It was $3.05 few years back. Since the minimum wage increases Teen unemployment has been averaging more than 20 percent for 40 consecutive months, according to the bureau and the Employment Policies Institute. Georgia ranks 11th on a list of the worst states, with a teen jobless rate of 27.9 percent

JLeslie's avatar

@monorob Not sure why you are so concerned about teen employment, adult employment is much more important, minimum wage did not have a $2.10 increase in recent years, and it was not $3.05 just a few years back. Where do you get that data from? Georgia’s minimum wage has been legally below the federal wage, but the state must follow the federal law. Maybe recently Georgia updated the state minimum wage? But, that is just a paper number. Basically GA should just write down in the books their minimum is the federal minimum and not worry about having to change anything. Unemployment has gone down in GA in the last year like the national average, and GA is not much below the national average.

monorob's avatar

I’m not concerned about any employment. I’m just proving the basic economic principle – that artificial wage increases that go above equilibrium wages cause unemployment for the unskilled labor (teenagers, adults who are poorly skilled). I’ll have to take a look at those workers who did manage to keep their job and get a wage increase. Most likely they’re not working as many hours as they use to because the employer doesn’t want hike up the price of the product or service (s)he is selling to the customers.

I linked you to the information about the increase in minimum wage.

States with higher minimum wage rates have higher unemployment. That is just the way it is. Look up California, Nevada, District of Colombia. One of the highest minimum wage rates coupled with the one of the highest unemployment rates.

JLeslie's avatar

@monorob Where is the link comparing minimum wage to unemployment? I must have missed it or didn’t notice it when I opened your link. Vermont, parts of the upper midwest have higher minimum wages and their unemployment is lower than the national average. I agree there are states where the minimum wage is high and they are struggling with bad unemployment, but I don’t think that is the whole story. The industries dominant in the particular states have a big affect on the numbers, and probably the overal wealth and affluency in the state.

Here is a link for map of minimum wages across the country.

And, here is a link for an unemployment map.

I actually can see an argument for a lower minimum for teens, but what is bad about it is it might take jobs away from adults.

monorob's avatar

The disability fraud coupled with the 87million not in the labor force puts the national unemployment rate well over 12%.

You have to analyze the data and each states history properly. That is why I used Georgia as an example since it had a low minimum wage but high unemployment. After taking a closer look, I found that in the past few years when it was raised from $3.05 to $5.15 minimum pay. the employment rose along with it, especially in unskilled labor which is what the economic principle states. Plus those unemployment numbers are higher.

I checked out about 15 states and it had straight forward results. High minimum wage rate = high unemployment for unskilled labor.

Nullo's avatar

@JLeslie @ETpro Yeesh, I point out one little thing (derived from personal observation, mind you) for you to add to your rumination and you drop on me like the bloody Inquisition. Keep your pet theories, and damn the rest of them – and criticism! – eh?

Perfection is beyond my abilities to implement, but in practical terms, within a socio-economic context, it would look a lot like people not being greedy lowlifes. We can’t make perfect people, though, so I’ll settle for the next best thing.

And no, I do not much like the idea of being over-worked, under-supplied, and under-paid so that Dear Leader Manager gets her juicy bonus. I would much rather give her a lifetime supply of rectally-worn boots. But right now that’s the only job that I’ve been able to find that isn’t an AMWAY clone, and I plan to stick with it until i find something better.

CWOTUS's avatar

You’re on the right track, @Nullo. We can’t make things perfect on Earth, but we can do the next-best thing and make exchanges of labor for money strictly voluntary for both parties. At least, it’s theoretically possible to do that.

JLeslie's avatar

@Nullo I was only asking from a philosophical standpoint, not trying to be the inquisition. I think as a society if we use a little dissapproval, shame, and we ask workers won’t put up with this shit anymore, things might change. Right now we have people onnthe short end of the stick worshipping and supporting the greediest of bastards. I don’t get it. I don’t argue we need to deal in reality. The employer may not change so fast, the government might spend our money unwisely, or not how we want, all true.

Nullo's avatar

@JLeslie You may not want to deal in reality, but other people do. People with agendas.
The service industry is the only one that’s hiring people at an appreciable rate, and I’m pretty sure that’s because they’ve got a lot of turnover. There’s a labor surplus right now, since the economy has stagnated, so the employer can pretty much do what he likes.
I grew into my first bills – student loans – when I graduated from college; not working is not an option.

Jaxk's avatar

I’ve been trying to stay out of this but some of the ideas are so far out of whack, I can’t. If you raise salaries, you will increase prices or reduce jobs or both. That’s the way it works. The idea that employers can just squeeze their margins to accommodate higher salaries and more employees is more than a little ridiculous. Business failures are up. That’s not because businesses are making lots of money. Start-ups are down. There are a few large multinational corporations that are making good profits but that doesn’t translate to everyone else. Even the large multinationals can’t use their extra profits here because they will lose up to 35% by just bringing the money back here.

Government spending doesn’t work either since all that accomplishes is to take money out of the private sector. We’ve been trying that trick for three years now and it doesn’t work.

Nullo's avatar

@ETpro Another thing: it’s just as wrong to steal from the rich as it is to steal from the poor; it’s just that it’s easier to justify.
There is nothing wrong with being rich; the problem comes in when wealth dominates your life, or you’re being a jerk for or because of it.

JLeslie's avatar

@Nullo I think reality is labor does eventually strike or push back in some way when pushed too far.

ETpro's avatar

@Nullo If anybody’s been stealing from the rich, they have been doing a darned lousy job of it, because the share of wealth owned by the top 1/10th of 1% has skyrocketed in the past 30 years. In the same time, real wages for the bottom 60% have gone down in terms of inflation adjusted dollars. The next 30% have seen just a modest rise. The top 1% have gained 265% in income in the same time.

JLeslie's avatar

@monorob @Jaxk Ok, let’s go with wage hikes raise unemployment. How about paying the people at the top less? Wouldn’t that help the business’ bottom line also? Make the business more able to hire more worker bees to increase productivity and service? Why doesn’t that make sense? I realize part of the answer is because employers have to pay competitive salaries,

The people making the least amount of money have the least power and are the most desperate for their jobs. It is taking advantage of them to pay one person $7.00 an hour and another one $600,000 a year, even if the person earning $600,000 a year has a higher education, is smarter, and his work is deemed more important. And, we all know there are executives making way more than $600,000. In smaller businesses probably no one is being paid $600,000, but I am not really thinking about very small businesses with less than 15 employees. Small business is defined in most industries as less than 500 employees, so that is not very small actually.

Nullo's avatar

@JLeslie Oh, yes. That’s standard cornered-animal behavior. Some quit, some vandalize, some slack off, some shoot up their offices. But to the rational wage-slave, the idea is financial suicide.
The higher-ups probably could improve the bottom line by reducing their own salaries, depending on their structure, but they won’t and I think that you know why.

@ETpro You either don’t read everything that I write, or you have less imagination than I thought. Which is understandable; I routinely fall short in both categories, myself.
it’s just as wrong to steal from the rich as it is to steal from the poor; it’s just that it’s easier to justify. Taking money from people who got it fairly is theft, regardless of how much more or less the victim has left. There’s a guy near here who developed a process for making cell phone chips with lasers, earns more money from patent royalties in a year than I’ll ever see all at once. Didn’t exploit anybody but himself.

ETpro's avatar

@Nullo I do not believe progressive taxation is wrong. And it also isn’t taking money from people unfairly. Progressive taxes hit each wage earner for exactly the same percentage on the same amount earned. Even back when we had a 94% bracket on those earning over $200,000 per year back in 1944–45. Everybody pitched in to win the great war. And $200,0000 was like a kings ransom in those days. But even then, the guy earning $1,000,000 a year and the guy earning $5,000 a year both paid EXACTLY the same tax rate on the first $5,000 they earned. The 94% rate did not apply to any part of the first $200,000 a taxpayer earned.

The fantasy that progressive taxation is stealing from the rich and giving to the poor is just that, a fantasy. It’s a falsehood conceived by would be oligarchs in hopes they can turn America into something akin to Haiti, and of course they will be the ruling families and use the force of the government and police to keep themselves at the top, and everyone else beneath them for generation after generation.

JLeslie's avatar

@Nullo Huh? Cornered animal behavior? Striking is animal behavior? I think everyone who worked for Best Buy or Target who was told to show up to work at midnight Black Friday morning should refuse. Simply stand together as employees and not do it. No one is talking about killing anyone. I am not keen on unions, but I am not keen on employer’s abusing their workers either. These extreme demands have got to be stopped in my opinion. If employees stand together it will end. As far as pay, employees can stand together for that too. But, of course you are right that those paid the least cannot risk a day without pay, so they are screwed unless government protects them, that is where minimum wage comes in. Although, probably most people are paid higher than the minimum wage anyway. Not sure the stats on that?

The higher ups won’t reduce their wages because they are too greedy, and people all around them think it is great they are rich and suck the life out of their employees. Not all of them, not every business is like this. Public companies are the worst. The board, and answering to stockholders about bottom line, is a big part of the problem regarding low pay and lay offs.

JLeslie's avatar

The more I think about this, the more I wonder…is this the first time in the history of America employees making a low wage, working crazy hours, and watching the people at the top make gobs of money, don’t want to rebel against the ivory tower? What the hell is going on? Man the wealthy really have played it so incredibly smart. And, I don’t mean all wealthy people, there are plenty who are fair employers. Convince the masses things will get worse if they rise up, that there is God in taking advantage of the poor, and it is impossible for things to change.

Seems to me if it goes on long enough and the rich get richer and more people join the ranks of the poor, not only will we economically be following in the footsteps of the third world, but we also will be ripe for people finally to want a break, a chance, a decent shot at living reasonably, and elect someone who promises them more equity, real socialism. There is irony in it. The most extreme of the right wing might actually lead the country down the path to socialism, because they did not fight for a reasonable balance for our citizens. Think Paron and Chavez. Nightmare in my opinion. The extremes lead to extremes, while somewhere in the middle is probably the sane place. Republicans accuse Obama of being a socialist? I have a feeling they ain’t seen nothin’ yet. If we stay on this course, it will be someone way more extreme than Obama in the future I fear.

monorob's avatar

@JLeslie,

The employer pays the worker based on how much value he brings him and the market and yes, the employer has to be competitive with the market which means (h)e may choose to offer perks to keep (h)is employees from leaving. There is no least power or more power. Everyone plans their own economy until equilibrium is met. The law of supply and demand – workers and employers will continue to adjust the quantity of labor supplied according to price until the quantity of labor demanded is equal to the quantity of labor supplied, reaching equilibrium price, where the supply and demand curves intersect.

A Mcdonalds employee who deep fries French fries for you is worth nearly zero value to the employee and the market. Why? Well even though there is a demand for unskilled labor, the job is just too unskillful which means there is a huge supply of these kinds of workers which means it supersedes their demand. Too much supply = low demand = low wage. Now take a doctor who is and always will be in high demand but of low supply because of the long and special education/training they have to undergo. They attained the skills which others did not. Since supply is low and demand is high for them, they’re very valuable to the market which is why they’re paid all too well. You seem to want the employer to cut his profits and give it to the Mcdonald employee so that (h)e can make $20 an hour for something that requires 1% of a brain to do. Not going to happen.

Go watch the link I pasted above – Edgar the Exploiter

monorob's avatar

@JLeslie wrote: “I think everyone who worked for Best Buy or Target who was told to show up to work at midnight Black Friday morning should refuse. Simply stand together as employees and not do it. ”

This was already tried under Reagan. The PATCO 1981 strike. They united and refused to go to work until the demands were met. You know how that turned out? 11,345 workers were fired and replaced fairly quickly for job that required a decent amount of skill.

Negotiations between employers and employees is one thing but using coercion against the employers is something else and isn’t tolerated which is why you don’t see many unions in the private sector. Unions can only survive by latching on to governments with the right politicians in office to feed their grossly absurd demands which the tax payer ultimately is forced to pay.

JLeslie's avatar

@monorob I know supply and demand. Jesus Christ I have a business degree. Marketing actually. I worked in retail for over 20 years. Manager, Buyer, Account Executive. I also am married to someone who is from the third world. I have a little perspective on both things. Your example of McD’s worker and doctors, I use the doctor example when talking about teachers salaries. It’s not that hard to be a teacher, a lot of people can do it. The requirements to get into an Elementary Ed degree are much easier than Business school or Engineering. They aren’t paid $150k a year in America because we pay based on skill level and supply and demand. Now that teachers are becoming short in supply the tides might turn, but their pay has little to do with whether their job is important. But, there aren’t that many neurosurgeons, and it takes a long time to become one, it is a highly specialized skill, so they get paid well. I get it, believe me, search fluther for some key word and my name and you will see that explanation a few times over the last three years.

Unions tend to get absurd in their demands, that is why I don’t like them. They are businesses unto themselves. Right now reasonable demands are not being met by employers. People keep saying if employees are paid more some employees will get fired. Well, if the business is making billions in profits they have room to pay more most likely. If the business is barely making it, higher wages will put the business out of business if they don’t cut somehwere else, obviously. I understand there are businesses that make so little margin on each wigit, the equation is not so simple, because it is difficult to cut the margin, and it is sheer volume that gives the incredible profitability, but most businesses there is room for better wages, or more employees and less pressure on the ones who are there. If supply and demand is the only thing affecting wages, and the employer has zero integrity, the employee will get abused either through low pay or some other way. Because of the vast supply of cheap unskilled labor, think China, Mexico, and the US many years ago, etc., It is almost like collusion, the business all together pay very very little, even when they can pay more. They also could sell the service or good for less, so it is more available to the population, and then people on lower wages can afford more. But, of course free market the seller will usually try to sell for as high as he can, as much as the market will bear. That seems to be what Delta airlines is doing right now their fares are rediculous! And, getting worse. They are so dominant in their hub airports (especially thenold northwest hubs) they have monopolies in those markets and can charge outlandish prices. My airport, Memphis, is almost always in the top 10 for most expensive airports in the nation. The most recent info I saw was that we are number 3 now. Competition only brings down prices when there is competition, if there is no competition the consumer can get screwed.

Auto unions, teachers unions, and some other unions around the country certainly did get higher wages and benefits for employees for a while. Striking made huge differences. The auto union back in the day saw huge huge profits rolling in, executives making crazy high money, and the workers wanted a piece of the profiting through higher wages and benefits. They did get higher wages. In fact, during the times of unions being much more present and powerful our middle class grew. It is part of the reason America had great prosperity and wealth as a nation. Give a multimillionaire another million and it doesn’t affect his spending much. Give 100 people currently making $50k an extra $10,000 and they will probably spend almost all of it. So, the middle class and poor help the economy more by giving them money, demand for goods and services increases. The problem is Detroit ignored their competitors when Japan brought in safer, much more reliable cars. They lost market share. The unions had demanded some crazy things, and then auto manufactures were locked in to those wages and benefits, hard to go backwards, and the combination of bad business decisions and union demands crippled the industry. If the employers had been reasonable all along, paid a decent wage to begin with and decent working conditions, unions never would have taken hold. If unions gave a crap about the bottom line of business, they would have worked with management better on the realities of the business during the downturn. But, the ivory tower cannot ask the bottom to take wage cuts and not do it themselves, but of course they do all the time. It is horrific in my opinion. It breaks the golden rule.

If all staff at Target and Best Buy decided in early November to tell management we will not work before 8:00 am the companies could not get enough employees to fill the whole store. Management should stand with them, believe me there are managers all across America pissed they had to come in for that midnight store opening. Stores like Macy’s the employees are more skilled than the other store mentioned, and Macy’s is putting the same demands. Retailers get one shot at the Christmas season each year, they cannot recoup a delay in “production.” They, the various employers, did threaten to fire anyone who did not show up for their scheduled shift at midnight, and then tried to tell the media they only put volunteers in thos eshifts who wamt the extra hours. Really? How does that make sense? Why would anyone have their job on the line if they want the hours?

Business can choose to pay more than what they can get away with. Have happy loyal employees, and the best workers among those unskilled. Even unskilled labor does have skills. Everyone counts. I am not in any way saying everyone should be paid the same, I am only saying when the pay difference between the bottom levels and top levels are so extremely different eventually it leads to a bad situation at work and in society.

Greed helps rev up the economy and create wonderful inventions and business, but extreme greed is selfish and destructive. It creates bubbles in markets and then they eventually pop. It is a matter of degree. Greed is not bad, I am a capitalist, I just want some integrity with that capitalism.

Nullo's avatar

@ETpro I am presently taking the view that all taxation is theft of some kind, and only justified by our need for internal structure. Less, I feel, is more.

@JLeslie Striking is retaliatory, unless you have regular “vacation” strikes. Italian transit strikes, for instance, are brief, involve no picketing, and a lot of times just feel like someone wants a few hours to themselves. They’ll run the trains and buses for the commuters, and spend the rest of the day relaxing.
Wal-Mart is a major employer. Wal-Mart also has a scorched-earth approach to dealing with any kind of union-flavored activity. Long-time employees will tell you that in the days of Mr. Walton, this wasn’t an issue – you could call right up to his desk and he’d bring hellfire and damnation with him when he came to investigate. Decent guy, principled. Now he’s dead, though, and the policy remains, and the people running the company are unscrupulous.

JLeslie's avatar

@Nullo Exactly, retaliatory. You don’t want to get hit, don’t hit.

monorob's avatar

A business that makes billions can certainly afford lower prices and pay employees more than they’re worth, but why should it? Again, why should an unskilled laborer be paid more than he is worth? A business is not a charity organization. A poor person is not more valuable than a rich person. The self-interests of one individual are not greater than anothers. We don’t sacrifice individuals or groups of people on an alter for the greater good of humanity.

There was an equilibrium before the employee was hired therefore there is no such thing as abuse through low pay or working conditions. If the employee doesn’t like the pay or working conditions, (h)e may leave and find work elsewhere. If (h)e doesn’t like any of the competitors either, than (h)e can take out a loan and start (h)is own business or change careers. If this doesn’t suffice than (h)e can either starve or lose (h)is sense of entitlement.

There is a large gap between wages because businesses are selling products/services that the market wants and willing to pay for. Just like the market decided that doctors are worth a lot more than the burger flipper. Businesses are right to fire anyone who threatens them and they did historically,

Why don’t you go investigate profit sharing incentives and the value they have added to those businesses that offer them.

1. Couple of things you clearly don’t understand. Businesses succeed in markets and help increase overall wealth in the system not by creating a closed loop of outgoing money and incoming money, but by providing value for money that they then invest in their continued success, which comes back to them by indirect means that include creating more wealth along the way.

2. Putting money in people’s hands does not create customers, thus putting money in people’s hands does not create demand.

3. Are you aware that when you pay someone to do something, they tend to do more of it? What are you paying poor people to do when you pay them for not working? Are you paying them to not work? This creates a strong incentive to be unproductive, thus resulting in less wealth generated in the market, which ultimately destroys the profitability of your business.

4. It’s not money that makes a difference in the economy’s strength. It’s wealth production, which requires productive people. Money is just a way to keep score. Money is simply there to make it easier to trade and exchange. Think about money as a measuring stick. Say you want to measure an area of the room, you take out a ruler, measure length and width, and you come up with some number whether you use meters or feet, you’ll get different numerical value, but size is the same. Well money is supposed to be the same.

If you give everyone 1 million dollars, they are not wealth. The goods and services they can spend this money on did not increase and remained the same. It takes a lot more time to produce something. Perhaps there will be some spare capacity, so first few guys who take their 1M and run to the store will be able to exploit the situation (people who has first access to new money always benefit) but prices will simply rise up to offset for newly minted (printed) money, so instead of paying $100 for pair of jeans you’ll pay 10K (or whatever) so you won’t be wealthier. Didn’t you learn about the hyper inflation when USSR collapsed? On average prices were doubling every few weeks. Money, went from 100 bills to 200 to 500 -1K – 10K 200K 500K. Everyone had huge sums of money, yet they were barely surviving.

5. You have missed the point that by forcing entrepreneurs to give up ever larger portion of (h)is profits and/or to redistribute them in any fashion, it’ll make (h)im think harder the second time around when (h)e is about to invest, and at some point he could simply decide to move somewhere else, thus a factory/business (h)e would’ve started will never be.

6. 400,000 wealthy individuals left France since 2000 because of their one of the highest progressive tax systems (especially that “wealth” tax). It was counter-intuitive. Instead of raising money, they lost more money + expenses. Now with the new socialist president, the remainder of the wealthy have fled to the U.K, Switzerland, and even here.

If you ever try pulling any of this tax absurdity here than that is the end of the wealthy in this country. They’re only around here because a lot them don’t actually pay the rates we have. We have so much loopholes and deductions that our tax system is a joke.

monorob's avatar

Oh yeah, and wealthy people already gave and continue to give a hell of a lot of money to charity to help the poor (voluntarily).

JLeslie's avatar

When did I ever say anything about paying poor people for not working? I am talking about paying people well for working hard.

I am talking about paying people for what they are worth. I think anyone who works hard, shows loyalty and integrity with their employer, shows up every day and does a great job should be able to live in a safe neighborhood and afford three meals a day for their family. I want to reward hard work. I think you think those blue collar jobs aren’t hard work. I challenge you to go do one of them for a year. See if you want to be paid more than what you get paid. Do you ever watch Undercover Boss? Amazing how the executives are totally clueless sometimes. Try the episode about Frontier Airlines. Employees took a pay cut while the guy at the top has a house so big it has a basketball court in it. Employees at smaller airports checking everyone in, and then also going out in the very hot sun to load the luggage on planes. If she counts wrong your plane can go down from extra weight.

Charity is something else entirely.

JLeslie's avatar

And, I never said pay everyone the same amount, stop dimishing and twisting what I am saying into ridiculousness. I do not believe every job is worth the same amount of money, I fucking gave you an example I use many times with doctors and teachers. I understand how it works, I believe in capitalitism, I believe in rewarding those who have specialized skills, I believe in healthy competition, I believe on people earning their way based on merit, I am not a communist, give me a break.

monorob's avatar

@JLeslie wrote “I am talking about paying people for what they are worth”

Yes and you agreed that supply and demand decides what they’re worth. You even gave me an example with teachers and doctors.

@JLeslie wrote “I do not believe every job is worth the same amount of money,”

Right again. You pointed this out in your same example. Supply and demand decides what every job is worth.

So what is your problem then?

JLeslie's avatar

@monorob I don’t think supply and demand is the only factor that should be considered for how much someone should be paid. I think it is one factor that influences what people are paid.

monorob's avatar

What are the other factors?

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