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Why is supply and demand so controversial on DP

I'm not sure where everyone's getting their economic mythology these days, but when someone says that an influx of labor being sold at a price below the prevailing wage height in any given field will lower the average wage for that field, where is the controversy?

It's simple supply/demand dynamics. You might believe that in the long run the wage will rebound, but as a matter of direct effect, adding supply to a market at a lower selling price than the existing supply up for sale will lower the price.

It seems like a lot of pseudo educated people deny this basic economic law and actually believe that an influx of cheap labor into a market has no downward pressure on wage rates.

Thoughts?

Please limit your thoughts to the direct concept without any extraneous political opinion thrown in or any emotional replies.



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Well, hell!

We can't all be amateur economists.

:D some of us can

:D some of us can

An influx of cheap labor sure

An influx of cheap labor sure will depress wages in the short run, but the market will clear (and it will do so faster than you think). What you'll have is what others have illustrated - inexpensive labor makes more businesses viable. More businesses produce more goods. More goods brings down prices. Competition will put pressure on wages to rise, but this is not terribly important.

What is important is the purchasing power of your labor. If goods are cheaper, it doesn't matter that wages are lower... in fact, in a sound money economy, wages rarely will rise over time. Everything continually gets cheaper and labor is no exception. Experience and skill should put upward pressure on wages, time should not.

When government is involved, however, all bets are off. The high barrier to entry for new employers makes all of this more difficult and less efficient.

Durk-r-derb!


http://youtu.be/768h3Tz4Qik

“The welfare of the people in particular has always been the alibi of tyrants.” — Albert Camus

Besides you, who said that it was?

objection,
false pretense.

please present evidence for supposition.

A sharp influx of labor in a

A sharp influx of labor in a single field will cause sharp unemployment in that field until that field's pay drops. The exception is in areas in which there are relative shortages. In a free market, including free movement of labor accross borders, this is impossible in the long run because labor prices are always kept moderate by a highly mobile population. When one one sector has labor prices driven down, other sectors have wages and purchasing power rise and visa versa.

You're completely missing the big problem

Markets clear unless the government interferes.

It is true that supply would lower price but then why does not that lower price result in more demand for labor? The answer to that question is the real problem. It is regulation, taxes, subsidies, price controls (minimum wage), licensure laws, etc. All of these protect employers from competition from other employers thus artificially reduce the demand for labor.

When the labor cost falls enough in any market sector this should attract new employers, but the law doesn't allow this. As well people should be able to go into business for themselves, but the law does not allow this either. You have to pay off the government to start most businesses which is an artificial barrier. You have to pay off the government to be licensed to work in most professions, which is an artificial barrier.

In terms of economic growth more labor is as good as more energy. It is energy. It allows more production, if it is allowed to be utilized.

The problem with immigration isn't that they will 'take our jobs' it's that with the welfare state many of them won't take our jobs, and with out regulatory state they can't invent their own, or become employers themselves.

Interesting question

Does the poster get to say what kinds of comments are allowed on his post? I say nay-nay.

Now as to your question: increasing the supply of labor without a change in the demand will shift the supply curve to the right, thereby increasing the market price.

“The welfare of the people in particular has always been the alibi of tyrants.” — Albert Camus

well since i did say it

well since i did say it surely i must 'get to' say it. however, since it is a request and not a command, whether people comply is immaterial to whether or not i can make the request.

It depends

If you have an influx of low skill jobs, that hurts low skill individuals, but it may actually increase the wages of high skill jobs.

Here's a concrete example. I used to live in an area with very few immigrants. The cost of yardwork was sky-high. So in the autumn I did my own leaves, a task that I can't stand. This meant I couldn't work as much as weekends. But since moving away, to an area with lots of immigrants, I can now afford to have someone else do the leaves for me, which has increased my wages.

However...

You may have had to rake your own leaves or you may have paid the neighbor's kid to do it, but now you are paying a grown immigrant man less money than the neighbor's kid, and that grown man has kids of his own. His kids go to the local public school and are on Medicaid. He lives in public housing because his kids qualify him for it. He can't afford health insurance so he uses the emergency room when he gets sick and then he doesn't pay his bill, which increases health care costs for people who actually pay for their care. He is most likely paid under the table so he doesn't pay into Social Security but will still be eligible for it when he is older or when he becomes disabled. Immigrant rights groups have encouraged him to get an Individual Tax Identification Number which enables him to receive the child tax credit to the tune of up to a grand per kid. As a taxpayer, instead of raking your own leaves on the weekend, you are now working for wages with your extra time. Those wages are taxed to help pay for all the benefits the guy who rakes your leaves is receiving. And they pay for increased law enforcement needed to police the guy's kids because he is too worn out from raking leaves all day to keep track of what his kids are doing.

"I ain't the dying type."

Reader, writer, soldier.

The question I was responding

The question I was responding to was how wages can rise from an increase in the labor supply. And I didn't hire some random illegal immigrant to do my yard. And the fact that my wages are taxed doesn't change the fact that I'm now earning more than I otherwise would have. The fact that I'm not paying my neighbor's kid to do my yard is irrelevant to me - if he offered a lower price for the same quality I would have chosen him. An immigrant with only a TIN does not qualify for the EITC so at worst he's paying no taxes.

OK.

I used to work for a landscaper and yard service. I saw how guys who owned yard service companies hired illegal immigrants and drove out the guys who hired young American workers. The guys who hired illegals charged lower prices for something that was already cheap. Once the legal guys were driven out, then prices were free to rise to what they were before, with the owners pocketing the difference. But instead of having teenagers and college students mowing lawns, you had a whole lot of poor immigrants mowing lawns and raking leaves for less than minimum wage, and those immigrants often had kids who were receiving government aid and were in the public school system.

"I ain't the dying type."

Reader, writer, soldier.

I don't get how any of this

I don't get how any of this matters or how this contradicts what I was saying.

I was challenged to explain how an increase in labor supply can raise wages, and I gave an explanation.

Are you advocating for a government policy that artificially increases the wages of low skill labor in order to protect certain people's jobs? Besides that being a misguided policy, that wasn't the question I was responding to.

Were your wages raised or are

Were your wages raised or are you making more money by earning wages on the weekend instead of raking your own leaves?

What your anecdote describes to me is someone who is paying less money to an immigrant which increases costs on the rest of us because that low paid immigrant is more likely to be using social services that are paid for by tax payers. The lower paid immigrants also tend to vote for politicians who support expanding the welfare state.

I think immigration is out of control in this country and we should have a moratorium on all immigration and start defending our own borders instead of fighting wars overseas. I think mass immigration policy is a tool central bankers are using to break down national sovereignty and bring about global governance and a global proletariat. They are using mass immigration to undermine our Constitution, lower our standard of living and end our sovereignty as an independent nation and people.

"I ain't the dying type."

Reader, writer, soldier.

My "wages" are higher now

My "wages" are higher now (really my salary divided by number of hours worked).

Let me once again state that all this other stuff about who immigrants vote for, whether they receive government benefits, etc., is all irrelevant to the question as posed by the OP. But it seems like you really want to discuss these other effects of immigration.

In fact, the OP's question can actually be divorced entirely from anything about immigrants from other countries. Say there's a nice quiet town full of happy people, but there aren't that many plumbers so the plumbers get lots of $$$. People start realizing this, and start studying plumbing. Also, plumbers from nearby towns move to get in on the deal. Now the wages of plumbers fall, and people can afford plumbers instead of doing it themselves. So now they can have more free time, or more time to work, whatever they want. That's pure capitalism at work, and it doesn't matter if the poor ex-plumbers that used to have great lives are now destitute and start collecting unemployment benefits and voting for more redistribution.

This same way of thinking can be applied to anyone who loses their job to someone who's willing to do it for less. Are we going to direct government policy to protect workers whenever they are going to lose out to someone who is better or more efficient, out of fear that they are going to vote for a Democrat or collect benefits?

There is the interesting question of why more yard workers haven't moved to areas where the going rate of yardwork is still high. I think that's a fair question. I suspect that over time the cost of yardwork will become more equal throughout the United States, but of course I don't know for sure.

Well, since 1965 we have had

Well, since 1965 we have had the largest influx of immigrants to our country in our history. We are taking in more than 1 million legal immigrants a year. Economically, has this been a good thing for us? Are the American people wealthier and freer now than before all these newcomers arrived in such large numbers? If Obama and the Congress push through the new immigration bill that is in the works, the rate of immigration is going to triple and the millions of illegals here will receive amnesty. I suppose many on this board believe three million new immigrants a year and millions of legalized undocumented folks will benefit them financially because all these immigrants will work for lower wages which will cause prices to fall. However, what I have seen happen here in California is wages fall but prices rise because all the new people increase demand for things like housing, gasoline and food at the grocery store. They also vote for politicians who promise to expand the welfare state. The globalists and central bankers want mass immigration because it works toward their internationalist goals of open borders, ending American sovereignty and lowering our standard of living to the global mean. It also serves their divide and rule strategy by transforming us from a nation with a common culture and language into a multicultural society. Theory is all well and good and it is what politicians use to justify policy, but reality is a better yardstick to measure results, and the effects of mass immigration on our country are not all roses and sunshine like the economists will have us believe. There are ulterior motives at work. Libertarians are useful idiots for the globalists as far as immigration is concerned, in my opinion.

"I ain't the dying type."

Reader, writer, soldier.

And if your labor is distingishable from the rest ...

it will be worth a premium.

Just because you work doesn't mean you are worth a premium.

Make yourself worth more.

those are inspirational

those are inspirational words, though i'm not sure they apply to the issue at hand.

if there are 10 people working in a prevailing wage structure (15-20 dollars), and the two top workers made 20. then 10 new people show up and enter the field willing to work for 10-15 wage structure, simply because they need the money more and are used to having less. the same level of work can now go for 10-15 real dollars, because the labor supply has doubled and there are now 4 people competing for the top two spots, all equally hard working.

you might reply, well those ten new people deserve the opportunity just as much and if they're willing to work as hard for less, they should get the spot. but clearly if you extrapolate that principle to its logical conclusion, then you are faced with global wage arbitrage would goes to a much lower overall wage structure than people are accustomed to in countries with advanced industrial economies. since its possible to train people in impoverished low capital intense countries to do the same quality of work or roughly the same quality for much less, you are dealing with simple supply and demand.

I'm guessing we mean

I'm guessing we mean immigrants?

Ok, I'll bite. Mexicans enter, cheap labor supply goes up, wages go down to balance it. Mexicans benefit with wages. American businesses benefit from the money the Mexicans spend here, or by doing business with the businesses the families of the Mexicans in Mexico spend the money at. The companies hiring the Mexicans here benefit, creating more product cheaper. The cheaper products benefit the Americans who buy it. The cheaper labor may create an opportunity for competitors to the company, further driving down product prices for consumers. Suppliers for the companies benefit from the increased production. More labor will be needed for all this, benefiting American workers, and wages will rise if the labor pool starts drying up. And we're done!

It can take a while for industries to reorganize to meet current demands and for wages to go up, but meanwhile the ripples of increased wealth continue to spread out to other industries, creating more businesses, and I THINK that will make the net wealth change for Americans positive regardless of how many Mexicans there are. The illusion is people focus on only one company, or one industry. And even if whatever adjustments take a while, our information age economy has more potential for efficiency than ever, and If given the chance, it would recover so much more quickly than in the 20th century downturns that left people stumbling around on their horses and buggies trying to figure out what's going on. Of course, there are unavoidable monkey wrenches like the massive debt problem.

The NAFTA argument

You just described a race to the bottom. Drive down wages by increasing the labor supply to increase profits for the investor class. The investor class and their economists promise that this will make us all wealthier because we can buy cheap consumer goods at WalMart, but the reality is that the rich get richer and the American middle class falls closer to the global mean, which is poverty.

The reality of our current immigration policy is that American workers are being replaced by foreigners to the tune of more than 1 million legal immigrants a year who will work for lower wages and who make fewer demands on their employers. Americans are being replaced by foreigners, but instead of finding new jobs with better pay, they are facing downward wage pressure and are falling into lower paid service jobs or else are going on food stamps and disability to make ends meet. Cheaper consumer goods have not made up the difference.

All of this is causing Americans to become easy prey for politicians who promise to expand the welfare state. The poor immigrants who replace American workers are bringing over their kids and putting them in our public schools and on Medicaid and are overrunning our hospital emergency rooms and our prisons. They bring their elderly parents over who collect Social Security without paying into it. The rapid population growth caused by mass immigration drives up the cost of housing and of commodities and takes a heavy toll on our environment.

The immigrants are not to blame. They are only trying to better themselves. They are being used by internationalists who prefer a global proletariat to paying American workers a middle class wage that supports an American middle class lifestyle, which they abhor.

Our entire native born working class is being systematically replaced by lower paid immigrants. Much of our professional class is being replaced now by new arrivals as well. This is by design. It is a deliberate policy of our government, which has been captured by people pushing an internationalist agenda.

Your post above gives the multinational corporate argument for increasing the supply of immigrant labor, which is an attempt at selling mass immigration to middle class folks as being a net benefit to us all, when in fact mass immigration has actually hurt the middle class while benefitting a small group of wealthy people at the top of the pile. Those wealthy people happen to be internationalists who are hostile to American sovereignty, our high standard of living and our Constitution.

They used the same kind of logic in your post to sell us NAFTA, which they promised would make us all wealthier, when in fact it made the majority poorer and concentrated massive amounts of wealth into a few hands in the financial sector. The same crowd of internationalists is working right now behind closed doors on a new immigration bill that gives amnesty to illegal immigrants while tripling the amount of legal immigrants allowed into the country. They are also working behind closed doors to push through the Trans-Pacific Partnership, which is NAFTA on steroids and will be pretty much the death knell of our republic. The TPP will nearly complete the globalization of our economy by integrating American labor with the Third World.

"I ain't the dying type."

Reader, writer, soldier.

That's an interesting multi

That's an interesting multi decade cycle you drew out. But the question was about the immediate impact. Decades later after the infusion it is no longer a new infusion of supply at a cheaper cost. I was curious about the position I've seen that wages don't face downward pressure from an influx of cheaper labor. And of course, your cycle story doesn't insulate against the continued influx of a potentially infinite supply of new cheap labor.

For example a small country, like Switzerland, or better yet Monaco. For all practical purposes, the supply of potential cheap labor for a small polity is infinite given the world population. So on open borders, there would never be a period of stasis for wages to rebound. It would be as if a fleet of space ships arrived with 1 trillion sentient creatures willing to work at subsistence wage - that would bring the prevailing wage rate for earth down to subsistence until every one of the trillion was absorbed.

Not much room at the top

That is where incomes are rising.

Median wage falls to lowest level since 1998
by David Cay Johnston November 4, 2013

Commentary: While incomes and jobs stagnate, top earners and corporate profits continue to gain

Last year the median wage hit its lowest level since 1998, revealing that at least half of American workers are being left behind as the economy slowly recovers from the Great Recession.

But at the top, wages soared — the latest indication in a long-running trend of increasing inequality, with income gains going to top earners while the majority of workers see stagnant or falling wages.

http://america.aljazeera.com/articles/2013/11/4/median-wage-...

allegory - ˈalɪg(ə)ri/ - noun - 1. a story, poem, or picture which can be interpreted to reveal a hidden meaning, typically a moral or political one.

I Got The Answer!

The government needs to create a minimum wage! I did some central planning calculations and $22 an hour is the best wage. Trust me, I am smart enough to know what a wage should be for all industries.

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I trust you, and am not at

I trust you, and am not at all worried about the unintended consequences of your grand schemes.

Good Job Bill

I am glad you agree that my central planning techniques are the solution and those evil profitable business owners are the problem. Together, in this collective society, we can employ every serf in this great nation!

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*NEW* Spread Liberty with our free speech!
www.freespeech.fm

.

I'm with you guys, but the minimum wage needs to be $12. I insist

if it was three dollars i

if it was three dollars i could get us a 3 dollar hooker.

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Fed could print and hand out unspendable $3 bills that way ppl think they are getting more money but it won't add to inflation. Economic stimulus, all based on perception

perception is key. if they

perception is key. if they gave us all gator shoes to wear everyone in the country would be dressed to impress and everyone would get promoted.