Cost of living in the US

[A Voice from the Mountains]

Posted by Rachel (here)
So it’s expensive here but our minimum wage is $18.93 an hour, while it’s only $7.25 in the US. Working full time at that rate you’re taxed at around 12% in the US, that’s the same rate as Australia, earning up to $38,700 (next bracket is 22%).

$7.25 is the federal minimum wage. It's $11 in California, and $12-13 in New York, depending on the size of the business, but the cost of living in those states is much higher as well. California and New York are both talking about raising their minimum wages to $15, but it only causes inflation.

In economic terms, the minimum wage is a price floor. It puts constraints on the functioning of the market and isn't really a good thing, though it's enticing to the general public in the same way that "free" government hand-outs are enticing to the general public, despite their economic ramifications.

This is how it's taught in economics classes, at least where the science of economics is still taught at all (many universities aren't requiring it anymore):



The price for labor set by the market itself, by the law of supply and demand, is the equilibrium price, or W(E) in this graph. The minimum wage is set higher, at W(MIN). The red line is the supply of labor and the blue line is demand for labor.

My economics textbook explains this better than I can, and uses a similar graph, so I'll just quote it here:

A minimum wage functions as a price floor. ... Note that the wage, or the cost of labor, on the y axis ($10 per hour) is the price that must be paid [W(MIN) in the graph above]. However, the market equilibrium wage ($7), or W(E), is below the minimum wage. The minimum wage prevents the market from reaching W(E) at E (the equilibrium point) because only the wages in the green shaded area are legal [above the black bar in the graph above]. Since the demand for labor depends on how much it costs, the minimum wage raises the cost of hiring workers. Therefore, a higher minimum wage will lower the quantity of labor demanded. However, since businesses still need to serve their customers, this means that labor expenses for the firm ordinarily rise in the short run. At the same time, firms will look for ways to substitute additional capital for workers. As a result, a binding minimum wage results in unemployment in the short run since Q(SSR) > Q(DSR).

Businesses generally want to keep costs down, so in the long run they will try to reduce the amount they spend on labor. They might replace workers with machinery, shorten work hours, offer reduced customer service, or even relocate to countries that do not have minimum wage laws. As we move past the short run, more people will attempt to take advantage of higher minimum wages. Like firms, workers will adjust to the higher minimum wage over time. Some workers who might have decided to go to school full-time or remain retired, or who simply want some extra income, will enter the labor market because the minimum wage is now higher. As a result, minimum wage jobs will become progressively harder to find and unemployment will be magnified. The irony is that in the long run the minimum wage, just like any other price floor, has created two unintended consequences: a smaller demand for workers by employers (Q(DLR) is significantly less than Q(E)), and a larger supply of workers (Q(SLR)) looking for those previously existing jobs.

Proponents of minimum wage legislation are aware that it often creates unemployment. To address this problem, they support investment in training, education, and the creation of government job programs [ie, socialism] to provide more work opportunities. While job programs increase minimum wage jobs, training and additional education enable workers to acquire skills needed for jobs that pay more than the minimum wage. Economists generally believe that education and training programs have longer-lasting benefits to society as a whole since they enable workers to obtain better-paying jobs on a permanent basis.

The textbook goes on to give an example of minimum wage increases causing economic hardship in Africa, but we don't have to go that far to see real-world examples of what is being taught here.

Price floors in action:

Thanks To 'Fight For $15' Minimum Wage, McDonald's Unveils Job-Replacing Self-Service Kiosks Nationwide

As the labor union-backed Fight for $15 begins yet another nationwide strike on November 29, I have a simple message for the protest organizers and the reporters covering them: I told you so.

It brings me no joy to write these words. The push for a $15 starter wage has negatively impacted the career prospects of employees who were just getting started in the workforce while extinguishing the businesses that employed them. I wish it were not so. But it’s important to document these consequences, lest policymakers elsewhere decide that the $15 movement is worth embracing.

Let’s start with automation. In 2013, when the Fight for $15 was still in its growth stage, I and others warned that union demands for a much higher minimum wage would force businesses with small profit margins to replace full-service employees with costly investments in self-service alternatives. At the time, labor groups accused business owners of crying wolf. It turns out the wolf was real.

Earlier this month, McDonald’s announced the nationwide roll-out of touchscreen self-service kiosks. In a video the company released to showcase the new customer experience, it’s striking to see employees who once would have managed a cash register now reduced to monitoring a customer’s choices at an iPad-style kiosk.

https://www.forbes.com/sites/realspi.../#60b3a48d4fbc

In other words, McDonalds is firing employees and replacing them with robots at great short-term expense (burger-flippers too, though they aren't mentioned in this article), because the mandated price floor (minimum wage) has forced them out of free market equilibrium.

This is really the same reason why you can't just pass a law making a $1,000,000,000,000 minimum wage. I mean if this was really the solution, then we could do that, but obviously that would shut down an entire economy immediately.

It also causes inflation, because when everyone's pay checks go up, they all start spending more money, demand increases, supply shrinks in the short run, and cost of living goes up. The minimum wage keeps going higher and higher, and so does everything else, right along with it.

In order for labor costs to be sustainable, they have to be in equilibrium with what the free market wants. If people aren't spending money on something, you can't force a company to pay higher costs for labor without negative consequences.

The textbook I quote above says that the solution offered by politicians is more government interference, putting the market more under the direct control of the government, with your government suddenly having to step in to provide your jobs and everything else. This is the downward spiral to totalitarianism and communism, or like what has happened in Venezuela.

Like I said, a lot of universities don't even teach this anymore, so it's no wonder that most people don't understand that minimum wage is a price floor, or what price floors do to the free market. Our founding fathers were gravely concerned that future politicians would "buy" the vote of the people by offering them "free" stuff, and all of the above is the reason why. It turns into the government having to step in to try to micro-manage the economy, which is what always causes communism to fail, because you just can't effectively run an economy with bureaucracy like that.

I’m wondering how difficult it is to get a trade in the US? And how well do they get paid? Seems to be the way to go? It varies greatly here, depending who you work for and what your trade is, but generally it’s a decent step up from minimum wage in Australia, maybe $5 and up more, but you have to live on very little while doing your apprenticeship.

It depends on the trade. Most of them require certification and licensing of some sort, but not necessarily formal education, and those jobs pay very well, usually $20-30 starting out. Plumbers make a crazy amount of money, because they're apparently in high demand and short supply. Construction workers also make good money starting out, though cheap Mexican labor puts a downward pressure on those wages, as it does in any industry.

[RedX]

Canada has now legalized recreational marijuana, which is supposed to be injecting $4Bn worth of industry into Canada.

https://www.rt.com/business/441485-c...cannabis-sale/

[Innocent Warrior]

Posted by A Voice from the Mountains (here)
$7.25 is the federal minimum wage...

OK, yeah our minimum wage varies between industries, some are lower than that, some higher. Well here’s hoping it goes up to $15, across the states would be better, they’d be doing better than here then, considering the difference in cost of living.

It’s still tough, we need two basic incomes or one decent income to get by and more if we’re to make any ground. No wonder we don’t have enough children to replace ourselves.

Trades - yep, tradesmen and women here are certified, most apprenticeships take four years to complete, as far as I’m aware, some are shorter (they work in their trade and complete a set amount of hours of education at tafe).

Thanks for the info, Voice.

[DeDukshyn]

Posted by RedX (here)
Canada has now legalized recreational marijuana, which is supposed to be injecting $4Bn worth of industry into Canada.

https://www.rt.com/business/441485-c...cannabis-sale/

"Good for th economy!" - they tell us -- that 4billion will never see the middle class ... it'll be taken from them (corporate giants already are taking over the industry and it was just legalized yesterday). Sure governments will have a little more tax money to squander foolishly ...