The Washington Post is reporting that a bill scheduled to raise the minimum wage in Virginia has died (cue the fiddles).
“Still, [Callahan] said it would send a message to low-paid workers: “They’ll continue to be low-paid.”
I’d like to take the time to remind you all that Labor is a Commodity.
Low wages serve as an incentive that should inspire workers to acquire new skills, or to develop the ones they are currently using to earn wages. If we remove the incentive for progress, we stagnate the labor force.
Business groups had opposed the twin measures, asserting that increasing the minimum wage would put Virginia at a competitive disadvantage with states that stick by the federal number. They said too that larger payroll costs would force businesses to cut jobs.
Allow me to explain:
I’m going to set up an elementary Supply-Demand chart. It is characterized by a downward sloping demand curve, and an upward sloping supply curve, which indicates that, for a given commodity, as the price increases, consumers are willing to purchase less of it, HOWEVER, producers would like to supply more of it.
Any deviation from the intersection of the supply and demand curves will upset the market. This is what we economists refer to as “disequilibrium.” When we raise the wage rate to 6, producers (laborers) would like to contribute more labor. HOWEVER, consumers (firms) cannot accomodate this, in fact, they can’t even maintain their current consumption of labor except at an increased total cost. coeterus parabus: all other things remaining equal.
But in the real world, things rarely remain equal. Which brings me to “things unseen.” In order to maintain the same level of output (goods and services that you buy), firms will generally need to do one of the following:
A)increase their prices and maintain their profit levels
B)lay off employees and require more productivity from the ones who remain employed
C)decrease their profits and maintain their labor consumption
I think it goes without saying, that most people don’t advocate laying off employees, and an increase in price to the consumer is something that most consumers frown upon.
When firms cut into their profit, it is generally a signal to investors to find somewhere else to put their money. People put money into firms because they believe that is where it will earn the best return – people will move their money to other firms (or states) where they believe the rate will be higher. Stock prices fall, and the firms are unable to leverage their future through sale of common stock. Now, business don’t have to necessarily decrease their profits – but they have to decrease something. They may choose to reduce their ability to effectively manage themselves, plan for the future, invest in the future, and service their debts. This reduces their ability to compete effectively, as they are forced to overwork their capital to the point of depletion.
All in all, I’d say this is a victory for the market.
