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Politics : Formerly About Advanced Micro Devices
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To: combjelly who wrote (859158)5/21/2015 10:37:05 PM
From: TimF1 Recommendation

Recommended By
PKRBKR

   of 1576348
 
Really? How does that work?

Message 30077683

If you run a hamburger joint and the price of beef goes up, do you stop selling hamburgers?

If it goes up enough yes. If it goes up less than that but still a lot you probably raise the price. At higher prices people consume less hamburgers. Hamburger oriented restaurants either expand their menu in to other areas, or shift their sales in to existing non-beef items already on the menu, or cut their hours to the busier ones where they can get enough business, or don't expand, or maybe go out of business.

For small increases in the price of beef maybe they can pass it along (since competitors may be doing so as well), or maybe they have to and can afford to eat it in lost profits (despite the often thin margins in the industry), but relating this back to minimum wage remember were talking about the idea of more than doubling it. Labor is almost always going to be more expensive than one food input (sometimes more than all food inputs) but if beef prices suddenly more than doubled its not like the restaurants could just say "oh its the price of doing business" and act like nothing important happened.

You and i-node assume that labor is elastic. If the price goes up, you reduce the amount you use. While there is some elasticity, there are limits.

The limit is 100% of your labor being eliminated when you go out of business. Short of that the demand for labor will be relatively (but not totally) inelastic in the short run, but over time you get less expansion, more automation, more hiring and keeping only productive employees who are reliable and do more work (and our willing to work for $15 even if they wouldn't for 7 and change) etc.

That's esp. true with such a massive price change. Small changes happen all the time but labor is probably going to be something like 25% to almost 40 percent of the cost of doing business. Few businesses can just shrug off an increase in cost of 12 to 20%.
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