Setanta wrote:
Our friend JP from Wisconsin has written this:
Quote:When the price of labor goes up, the prices go up. Those that benefited from the minimum wage increase, gain little or nothing because prices also increase. Those that did not benefit from a minimum wage increase (let's say they are already making $10 an hour when minimum wage was increased to $8) actually lose buying power. Their wages stay the same, but are now paying more for commodities.
I think there is a false assumption among some minimum wage advocates that the increase of wages comes out of the pockets of the business. In reality the business still get theirs and simply passes on the increase to the consumers.
This represents some simplistic and rather naive notions of how consumer economies work.
I'll give you simple... but certainly not naive.
Setanta wrote:Implementing a minimum wage does not necessarily make the cost of consumer goods increase across the board and without exception--that ignores not only cheaper foreign imports (consider how many American businesses have moved their operations overseas since the Reagan era to take advantage of lower wage labor forces and less onerous employment conditions standards), but it also ignores that there are a host of means by which capital can compete effectively other than keeping down labor costs.
First, how does lower foreign labor help reduce costs, if expensive domestic labor does
not mean increased costs? That doesn't make any sesne. Either labor costs matter in which case higher labor costs would increase prices and reduced labor costs would lower prices, or, they don't matter at all in which case it wouldn't matter if you were using higher domestic labor or lower foreign labor.
Second, how is this good for the people you are trying to help by increasing the minimum wage? Instead of having a job with lower pay then you would want to see, now they have no job because manufacturing has been moved overseas to use cheaper foreign labor.
Of course I do agree with you that increased labor costs do not automatically mean an increase in prices... which we'll get into a bit more below.
Setanta wrote:One obvious means is economies of scale. If you are manufacturing whozits, and you need 5,000 widgets a month to produce them, you can use the power of capital to not only reduce your costs, but increase your volume. If, instead of buying 5,000 widgets a month, you use your capital (or borrow some) to purchase 60,000 widgets at the beginning of the year, you can get a cost reduction on the production of whozits without needing lower labor costs. Not only can this help your bottom line, but you can put a portion of the increase of profit from the reduction of costs into a reduction of the price to the consumer, and beat the competition with volume sales, which can mean that you actually make more money by reducing the price to the end-user.
Not only does this not have to do with increased labor costs, but it makes assumptions that I find rather simplistic and naive. The first assumption is that the company is not already doing this. What if your ficticious whozits company was already buying widgets for the year, thereby reducing their costs, and
then they get hit with a minimum wage increase? They are going to either have to cut costs more, or increase prices.
Now there are certainly ways to cut more costs. You can increase efficiency. Either train your workforce better so you can produce the same amount with less people, or produce more with the same amount of people. Either scenario is an overall decrease in jobs, however. You are either not cutting jobs to save money, or not adding any in situations where you normally would. You can also automate your production. This of course, also reduces jobs by replacing them with machines. Or, you can cut benefits. All of these are cost saving ideas... and all of them are neccesary due to the increase of labor costs. And most of them do not help out the worker.
Setanta wrote:Vested interests also help. If you think your outlay for widgets is too high, and you have (or can borrow) sufficient capital, you can start operations to manufacture widgets yourself, and again reduce the costs of the whozits you sell, and increase your volume by undercutting the price charged by the competition.
Certainly. Of course you need sufficient credit/capitol in order to do this. Many small and medium companies have neither the capitol nor desire to get into manufacturing a second product... and even if they did, they still have to deal with the increased labor costs that they are paying the new widget manufacturing division.
Many people on this board love to bitch about Walmart (and other large corporations) due to the fact that they put small mom and pop business out of business. These are the exact sort of cost saving strategies that gives Walmart the price advantage over smaller sized companies. Walmart has more capitol and more ways of implementing these stragegies then smaller sized companies. Why? Well because they are dealing in volume just as you are advocating.
Now I'm all for the free market and letting the better company win, but had labor costs not increased, the small to mid-sized companies would have more capitol available in order to expand their operations. This would not only create more jobs (instead of shipping them overseas) but would also help slow the rate of inflation by giving the manufacturer low labor
and cost cutting strategies that would allow them to keep their prices lower, longer and enabling them to compete with the Walmart types.
This is good for all of us... not just the few on the bottom that are now making a couple of bucks more.
Setanta wrote:Cutting managerial dead wood can help, as well. Many corporations expend incredibly extravagent amounts on management, and as often as not, because the members of the board feel no empathy for labor, but recognize management as members of the same "club." When Lee Iacoca convinced Chrysler workers to accept a pay cut to help keep the company afloat, he got more than $11,000,000 in compensation that same year, and that without consideration of stock options available to him. Now, one could allege that his superior skills as a manager made it worth the price--however, i would be unconvinced, and suggest that just about any new broom could have swept as clean, and at a fraction of that bill.
I'm all for this. I live in middle management hell and see everyday the waste that my company hemorrhages. Yet, here again, you are arguing that increases minimum wages doesn't effect prices and then stating that a way to cut costs and keep prices low is to get rid of
high paid managers. How do managers salary effect prices but the hourly employees don't?
Setanta wrote:Effective control of packaging and marketing costs can help a great deal, as well. What are known in the United States as generics offer products of equivalent or near equivalent quality at a much reduced price because the cost of expensive packaging, marketing and advertising is removed from the product price. Once again, that is a situation in which volume sales can mean that you can actually make more money by offering products at a lower price, but selling in volume.
The market decides this and much of it deals with the innovations and cost cutting techniques we have already discussed. Sure you can produce cheap generic automated products, but there is a market for expensive, brand named goods. Of course you still have to compete with other brand names (as well as the generic), so labor costs are still an issue for the companies that want to produce more expensive goods.
Setanta wrote:The bottom line in consumer society economics is volume sales. Ceratinly, advertising and marketing can help convince the population that they need $300 running shoes. But the guy who sells you $20 Chinese-made sneakers will beat you to death on volume, and probably join your country club--and if he has the price of admission, he'll be just as welcome there.
I don't disagree with any of the cost cutting measures you are advocating. But to do them in response to forcibly increased labor costs is like taking one step backward, one step forward and calling it progress. If employers could instead keep the costs of labor low
and enact all of these measures, then they would have more control over how they price their products. The market could then decide which Whozit manufacturer to buy from based on quality and price relations.
