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Author Topic: Health Care and long-term disability  (Read 24321 times)
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Situation Normal--all fouled up!

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« Reply #15 on: May 01, 2016, 12:39:36 PM »

I have heard that people would have a higher income in such a society; but if people have more disposable income would companies adjust their salary levels to suit the lower prices? Could people in the long run earn less?

Sorry, I meant to answer this a long time ago, and got distracted.  Also, I've been trying to think of an adequate and appropriate response.

I guess what really bothers me about this idea is the implication that employers/capitalists are deliberately evil, cold-hearted bastards, which at best is a broad generalization, and at worst, a simple, propagandist lie.

 The short answer is quite simply that employers pay wages based on the market for labor, and with little or no concern for how much goods and services those wages can buy.  Even an especially empathic and concerned employer who was concerned about the "living wages" of his employees would find himself constrained to a large degree by the going market rates for labor.  And I do mean "rates" plural, because while labor is to a large degree a commodity, it's also not homogenous.  A skilled welder or computer programmer is going to command a higher rate than your typical fast food worker because their skills make them more productive and thus worth more to the employer.  No person who manages to hold a job for any length of time truly remains an "unskilled laborer", because they are gaining skills on the job and increasing their value to the employer. 

Having said that there is no direct relationship between wages and how much goods and services those wages can buy, it seems clear that there may well be some indirect relationship, but given the complexity of the economy, the relationship itself may not be obvious or clear-cut.  That is, one change in the economy can and does have rippling effects that will eventually affect the entire economy, but it is difficult to determine exactly what the overall effect of a change may be. 

Let's look at a minimum wage increase, for example.  It's obvious that increasing the minimum wage will affect the economy, but in what way?  The money to pay for the higher wage has to come from somewhere else in the economy, but as minimum wage laws don't specify *how* employers should pay for the higher wage, there are several options open and different results may occur.  Employers may raise the price of the good or service they sell to cover the increase, but if they do that, they may lose business to the competition or to substitute goods and services if fewer consumers are willing to pay the higher price.  Or employers may demand more work or more responsibilities of their existing employees and resist hiring new employees until they absolutely have to, but this may result in the demoralization of their employees and also contribute to higher unemployment as people find it harder to get a job. Employers may find ways to increase the productivity of their employees to help cover the wage increase, but doing so also requires finding the money, the capital, in order to increase productivity. 

And there are possibly other employer options, and employers may employ different possible combinations of options, instead of just one option.  All of these options will change the economy in different ways, and in any reasonably large and complex economy, the changes are difficult to follow and determine, even for professional economists. This is why economists rely upon economic models to help understand and explain the economy, and why the basics of economics, even for laymen, is so useful and worthwhile.  Economists know that price controls like the minimum wage deviate from consumer demand and thus have adverse effects on the goods and services available to consumers, even if determining the exact result of those effects is difficult or impossible. 

In short, it's nonsense that employers deliberately set wages based on how much goods and services those wages can buy - it's determined by the supply and demand of labor in the market.  However, given the complexity of the interactions between supply and demand in the economy, it seems likely that there must be some kind of indirect relationship between wages and the availability and cost of goods and services.  If there are economists who have clearly determined or formulated this relationship, however, I'm not aware of it. 

One more point, in case I didn't make it clear.  What matters most is not the actual, nominal rate of wages, but how much goods and services that wage can buy.  $5.00/hour is a great wage if a loaf of bread only costs 10 cents, but a terrible wage if a loaf of bread costs $10.  This is one of the problems with minimum wage laws, that they only specify nominal wage rates, without considering the actual purchasing power of the wage. 


"I love mankind.  It's people I can't stand!"
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