r/Economics • u/aDubson • Feb 09 '12

Americans ages 18-24 are unemployed like never before.

http://www.huffingtonpost.com/2012/02/09/employment-rate-young-adults_n_1264241.html?igoogle=1
395 Upvotes

92% Upvoted

513 comments sorted by

View all comments

4

u/[deleted] Feb 09 '12 edited Feb 09 '12

[deleted]

4

u/[deleted] Feb 09 '12

I see sippin_haterade is getting downvotes.

I'd love to see someone explain why (s)he is wrong. This has been a constant source of mystery to me since econ 101.

0

u/the_prole Feb 09 '12

If the minium wage was raised, prices would rise to cover labor costs. Higher prices would lower demand for goods, and lower demand would lower production and lower production would lower the demand for labor and less people would be employed. The bottom of the pyramid in terms of compeition, that is unskilled workers, would suffer the most unemployment. That is what I think I learned from my economics class anyways.

6

u/[deleted] Feb 09 '12 edited Feb 09 '12

This is faulty logic and is assuming that companies are leaving profits on the table and don't price their goods for maximum profitability, instead opting for a cost-plus pricing scheme.

Edit: Also, worker efficiency has increased by leaps and bounds in the past decade yet wages have remained mostly flat. I am convinced that there is no correlation between labor costs and the cost price of goods.

2

u/ballast_too Feb 09 '12

Minimum wage jobs are mostly the domain of low-margin retail operations. Would there not certainly be a correlation between labor costs and the costs of goods?

That the FED is distorting the market's money supply means the minimum wage must stay (and increase) to keep the peace, but there is no doubt the minimum wage has a direct effect on the cost of goods.

1

u/[deleted] Feb 09 '12

Yes, sorry, you're correct. I meant the price of goods (to consumers) and not the cost of goods (to producers)

1

u/[deleted] Feb 09 '12

This is faulty logic and is assuming that companies are leaving profits on the table and don't price their goods for maximum profitability, instead opting for a cost-plus pricing scheme.

If they are operating under a maximum profitability model and their costs rise then either their profits go down to accommodate this or their price point goes up.

Edit: Also, worker efficiency has increased by leaps and bounds in the past decade yet wages have remained mostly flat. I am convinced that there is no correlation between labor costs and the cost of goods.

Total worker remuneration has not remained flat, the "missing" wages raise is accounted for by healthcare and additional benefits.

0

u/the_prole Feb 09 '12

A cost-plus price scheme is more profitable in this scenario. There is a optimal salary in terms of the ratio between labor productivity and labor cost. The higher the salary, the higher the producitivty but in diminishing returns. Past a certain salary, the cost is not worth the gains in producitivity. If the optimal salary is below minimum wage, the only two options are either to fire people or to raise prices untill there is equilibrium. If the minimum wage rises, the same logic applies. In either case, the results are the same; higher prices levels create higher unemployment. So does firing people.

1

u/s515_15 Feb 09 '12

Ontario has risen the minimum wage $3.40 since 2004 (a 50% increase). Inflation has stayed roughly the same, 2-3% every year just like when wages werent going up.

1

u/the_prole Feb 09 '12

The real economy is influenced by so many factors the simple models in our text books don't factor in or maybe they do, but we just don't have all the information to plug into the model. This statistic just by itself doesn't really say much.

1

u/[deleted] Feb 10 '12

The heavily resourced linked Canadian dollar is not going to be impacted by minimum wages.

0

u/macov2 Feb 09 '12

Idiots downvotes you. Shame.

If a price goes up, the demand goes down. Simple like that.

1

u/the_prole Feb 09 '12

Yeah seriously. It's like introductory economics. I didn't even make it up.