15 Wages vs Labor Costs Perhaps one of the most misunderstood concepts in econom

Question

15 Wages vs Labor Costs
Perhaps one of the most misunderstood concepts in economics is the concept of pay. Wages are the rate paid to a worker for a period of time. Example: $10.00 an hour. Labor costs are the wages plus what it costs the employer to have you working for him. these are sometimes called perks (perquisites).
Wages are pretty well understood except perhaps by unions and there adherents. A wage increase can only come from an increase in output---productivity---otherwise it leads to unemployment. Something has to pay for the increase else the company will fold. The productivity must come before a pay raise. How much should a worker be paid? It depends on how much he/she can contribute to the firms profits---marginal revenue product. Wages are primarily based on a persons skill level and the intensity of demand for that skill. If it costs more to employ a person than they can contribute to the firm's revenues they will either not be hired in the first place or they will lose their job. In economics, a person who is just above the revenue line---he is making a positive contribution to the firm's revenue---is called the marginal unit. The company is not a charitable institution. It can't simply raise prices to pay for a pay increase. The result would, in all probability, be a decline in sales and revenue. This in turn will mean lay-offs, reduced hours or possibly a bankruptcy.
The problem with the current demand for $15.00 an hour minimum wage is the Law of Unintended Consequences. Yes, some people will benefit but others will lose. They will no longer have a job. The fast food industry is now under siege. McDonalds only owns a few of the stores. The rest are franchisees who are independent owners who pay royalties for the use of the name and the business model. Their profit margin is very thin. The pressure is already leading to automatic ordering (on an ipad like device), automatic food preparation, etc. It is estimated that the work force in these places will be dramatically cut or quite a few stores will close. I think what will be left will resemble the automate of the 1940s and 50s. Let's suppose that the minimum wage people prevail and there is no increased costs associated with the pay increase or that productivity increases to cover the new costs. Let us also say that I have been working at one of these places for a year and worked myself up from $8 an hour to $10 an hour. How do think I am going to feel if the new people just starting are earning more than I am after a full year of work? Ah! But you will now be making $15 an hour as well. What about the year I put in to increase my pay by 20% or so? Won't I want 20% more than those just starting? What about the people currently working at $15 an hour where suddenly an up-start comes in earning as much as I am after several years of work? What will happen in retail and service companies where workers are making $10 to $14 an hour? Keynesians rarely see the end result of their feel good measures. It doesn't matter if it works or not. They feel good because they tried. Who then cleans up the mess made in the wake of this ill advised plan? When I was serving in Viet Nam we needed civilian labor. The prevailing wage was the equivalent of $20 a month. What should we have paid them? The socially motivated would say pay them what they would earn in the US doing a similar job so they live a better life. But what would that have done to the economy? No one would want to work for anyone except the US military. The economy would be in a shambles! Businesses would not be able to find workers and if they could they would not be able to afford to hire them. The economy, already in trouble, would have collapsed. Thousands would have been unemployed and starving. Not that they were living in the lap of luxury during the war. So what did we pay them? A little more than the average, $22 a month so we would attract the best.
The market should determine wages. If you have a skill that is in high demand you will receive a higher wage than those with no skills or marginal skills. The more you produce, the higher your wages. Wages do not suddenly appear out of the air. In order to pay wages there must be earnings. The earnings come from sales. The sales come from producing products that satisfy consumers needs and wants. They must also be at a price people are willing to pay. Economics is really very simple!
Labor costs are a very different problem understood by few who do not own a business. Labor costs are based upon 2080 hours a year (40 hours a week times 52 weeks). From this we subtract holidays, vacation time, sick days,etc. We now have approximately 1800 hours over which we must amortize our fixed costs. This will raise per unit costs. Then there are costs such as social security, Medicaid tax, unemployment and disability taxes, health care, etc., the payroll taxes that must be covered by productivity.
When added together, the cost for business is approximately another 87 cents for every dollar of pay. If you are paid $10 an hour it costs the employer $18.70 to have you employed. All of which must be recovered by increased productivity. The employer must then seek ways to lower real costs and restore both the gross and net revenues to an acceptable level. He can automate, reduce workers hours, not provide health insurance coverage, etc. Some will be laid off. These additional costs can only be recovered through increased productivity. Be careful what you ask for!
As my late friend Harry Browne said: There is a price that must be paid for everything. Everything you do has a price that must be paid. Some costs are high, some are moderate. They must, however, be paid. Was Harry Browne right? The increase in the minimum wage is a noble venture. It is, however, not a well thought out venture. It is as I have said many times, Keynesians and their followers are not evil people, they simply do not follow ideas to their logical conclusions. They think only of the feel good quality of the offering help. That's all that matters. Not results of their mis-guided actions. Never forget opportunity cost---it is real! Consider what has happened in Seattle because of their $15 an hour pay rate. Business are closing or moving out of the city and into the suburbs. The average wage for workers has gone down by $125 a week. There is no such thing as a free lunch. Could this happen here in Orlando?
There are 9 embedded questions.
Addendum:
Since I wrote this Discussion Board we have had the tax cuts, Jan. 1, 218, and a great reduction in regulations (nearly 1500). The result has been a dramatic cut in corporate taxes which has led to an increase in business investment of a 39% over 2016s investments. This has allowed business to voluntarily increased wages. Unemployment is now the lowest it has been in 50 years. Unemployment among black workers is the lowest it has been since they began keeping records, as is employment among Hispanics.
15 Wages vs Labor Costs
Perhaps one of the most misunderstood concepts in economics is the concept of pay. Wages are the rate paid to a worker for a period of time. Example: $10.00 an hour. Labor costs are the wages plus what it costs the employer to have you working for him. these are sometimes called perks (perquisites).
Wages are pretty well understood except perhaps by unions and there adherents. A wage increase can only come from an increase in output---productivity---otherwise it leads to unemployment. Something has to pay for the increase else the company will fold. The productivity must come before a pay raise. How much should a worker be paid? It depends on how much he/she can contribute to the firms profits---marginal revenue product. Wages are primarily based on a persons skill level and the intensity of demand for that skill. If it costs more to employ a person than they can contribute to the firm's revenues they will either not be hired in the first place or they will lose their job. In economics, a person who is just above the revenue line---he is making a positive contribution to the firm's revenue---is called the marginal unit. The company is not a charitable institution. It can't simply raise prices to pay for a pay increase. The result would, in all probability, be a decline in sales and revenue. This in turn will mean lay-offs, reduced hours or possibly a bankruptcy.
The problem with the current demand for $15.00 an hour minimum wage is the Law of Unintended Consequences. Yes, some people will benefit but others will lose. They will no longer have a job. The fast food industry is now under siege. McDonalds only owns a few of the stores. The rest are franchisees who are independent owners who pay royalties for the use of the name and the business model. Their profit margin is very thin. The pressure is already leading to automatic ordering (on an ipad like device), automatic food preparation, etc. It is estimated that the work force in these places will be dramatically cut or quite a few stores will close. I think what will be left will resemble the automate of the 1940s and 50s. Let's suppose that the minimum wage people prevail and there is no increased costs associated with the pay increase or that productivity increases to cover the new costs. Let us also say that I have been working at one of these places for a year and worked myself up from $8 an hour to $10 an hour. How do think I am going to feel if the new people just starting are earning more than I am after a full year of work? Ah! But you will now be making $15 an hour as well. What about the year I put in to increase my pay by 20% or so? Won't I want 20% more than those just starting? What about the people currently working at $15 an hour where suddenly an up-start comes in earning as much as I am after several years of work? What will happen in retail and service companies where workers are making $10 to $14 an hour? Keynesians rarely see the end result of their feel good measures. It doesn't matter if it works or not. They feel good because they tried. Who then cleans up the mess made in the wake of this ill advised plan? When I was serving in Viet Nam we needed civilian labor. The prevailing wage was the equivalent of $20 a month. What should we have paid them? The socially motivated would say pay them what they would earn in the US doing a similar job so they live a better life. But what would that have done to the economy? No one would want to work for anyone except the US military. The economy would be in a shambles! Businesses would not be able to find workers and if they could they would not be able to afford to hire them. The economy, already in trouble, would have collapsed. Thousands would have been unemployed and starving. Not that they were living in the lap of luxury during the war. So what did we pay them? A little more than the average, $22 a month so we would attract the best.
The market should determine wages. If you have a skill that is in high demand you will receive a higher wage than those with no skills or marginal skills. The more you produce, the higher your wages. Wages do not suddenly appear out of the air. In order to pay wages there must be earnings. The earnings come from sales. The sales come from producing products that satisfy consumers needs and wants. They must also be at a price people are willing to pay. Economics is really very simple!
Labor costs are a very different problem understood by few who do not own a business. Labor costs are based upon 2080 hours a year (40 hours a week times 52 weeks). From this we subtract holidays, vacation time, sick days,etc. We now have approximately 1800 hours over which we must amortize our fixed costs. This will raise per unit costs. Then there are costs such as social security, Medicaid tax, unemployment and disability taxes, health care, etc., the payroll taxes that must be covered by productivity.
When added together, the cost for business is approximately another 87 cents for every dollar of pay. If you are paid $10 an hour it costs the employer $18.70 to have you employed. All of which must be recovered by increased productivity. The employer must then seek ways to lower real costs and restore both the gross and net revenues to an acceptable level. He can automate, reduce workers hours, not provide health insurance coverage, etc. Some will be laid off. These additional costs can only be recovered through increased productivity. Be careful what you ask for!
As my late friend Harry Browne said: There is a price that must be paid for everything. Everything you do has a price that must be paid. Some costs are high, some are moderate. They must, however, be paid. Was Harry Browne right? The increase in the minimum wage is a noble venture. It is, however, not a well thought out venture. It is as I have said many times, Keynesians and their followers are not evil people, they simply do not follow ideas to their logical conclusions. They think only of the feel good quality of the offering help. That's all that matters. Not results of their mis-guided actions. Never forget opportunity cost---it is real! Consider what has happened in Seattle because of their $15 an hour pay rate. Business are closing or moving out of the city and into the suburbs. The average wage for workers has gone down by $125 a week. There is no such thing as a free lunch. Could this happen here in Orlando?
There are 9 embedded questions.
Addendum:
Since I wrote this Discussion Board we have had the tax cuts, Jan. 1, 218, and a great reduction in regulations (nearly 1500). The result has been a dramatic cut in corporate taxes which has led to an increase in business investment of a 39% over 2016s investments. This has allowed business to voluntarily increased wages. Unemployment is now the lowest it has been in 50 years. Unemployment among black workers is the lowest it has been since they began keeping records, as is employment among Hispanics.
15 Wages vs Labor Costs
Perhaps one of the most misunderstood concepts in economics is the concept of pay. Wages are the rate paid to a worker for a period of time. Example: $10.00 an hour. Labor costs are the wages plus what it costs the employer to have you working for him. these are sometimes called perks (perquisites).
Wages are pretty well understood except perhaps by unions and there adherents. A wage increase can only come from an increase in output---productivity---otherwise it leads to unemployment. Something has to pay for the increase else the company will fold. The productivity must come before a pay raise. How much should a worker be paid? It depends on how much he/she can contribute to the firms profits---marginal revenue product. Wages are primarily based on a persons skill level and the intensity of demand for that skill. If it costs more to employ a person than they can contribute to the firm's revenues they will either not be hired in the first place or they will lose their job. In economics, a person who is just above the revenue line---he is making a positive contribution to the firm's revenue---is called the marginal unit. The company is not a charitable institution. It can't simply raise prices to pay for a pay increase. The result would, in all probability, be a decline in sales and revenue. This in turn will mean lay-offs, reduced hours or possibly a bankruptcy.
The problem with the current demand for $15.00 an hour minimum wage is the Law of Unintended Consequences. Yes, some people will benefit but others will lose. They will no longer have a job. The fast food industry is now under siege. McDonalds only owns a few of the stores. The rest are franchisees who are independent owners who pay royalties for the use of the name and the business model. Their profit margin is very thin. The pressure is already leading to automatic ordering (on an ipad like device), automatic food preparation, etc. It is estimated that the work force in these places will be dramatically cut or quite a few stores will close. I think what will be left will resemble the automate of the 1940s and 50s. Let's suppose that the minimum wage people prevail and there is no increased costs associated with the pay increase or that productivity increases to cover the new costs. Let us also say that I have been working at one of these places for a year and worked myself up from $8 an hour to $10 an hour. How do think I am going to feel if the new people just starting are earning more than I am after a full year of work? Ah! But you will now be making $15 an hour as well. What about the year I put in to increase my pay by 20% or so? Won't I want 20% more than those just starting? What about the people currently working at $15 an hour where suddenly an up-start comes in earning as much as I am after several years of work? What will happen in retail and service companies where workers are making $10 to $14 an hour? Keynesians rarely see the end result of their feel good measures. It doesn't matter if it works or not. They feel good because they tried. Who then cleans up the mess made in the wake of this ill advised plan? When I was serving in Viet Nam we needed civilian labor. The prevailing wage was the equivalent of $20 a month. What should we have paid them? The socially motivated would say pay them what they would earn in the US doing a similar job so they live a better life. But what would that have done to the economy? No one would want to work for anyone except the US military. The economy would be in a shambles! Businesses would not be able to find workers and if they could they would not be able to afford to hire them. The economy, already in trouble, would have collapsed. Thousands would have been unemployed and starving. Not that they were living in the lap of luxury during the war. So what did we pay them? A little more than the average, $22 a month so we would attract the best.
The market should determine wages. If you have a skill that is in high demand you will receive a higher wage than those with no skills or marginal skills. The more you produce, the higher your wages. Wages do not suddenly appear out of the air. In order to pay wages there must be earnings. The earnings come from sales. The sales come from producing products that satisfy consumers needs and wants. They must also be at a price people are willing to pay. Economics is really very simple!
Labor costs are a very different problem understood by few who do not own a business. Labor costs are based upon 2080 hours a year (40 hours a week times 52 weeks). From this we subtract holidays, vacation time, sick days,etc. We now have approximately 1800 hours over which we must amortize our fixed costs. This will raise per unit costs. Then there are costs such as social security, Medicaid tax, unemployment and disability taxes, health care, etc., the payroll taxes that must be covered by productivity.
When added together, the cost for business is approximately another 87 cents for every dollar of pay. If you are paid $10 an hour it costs the employer $18.70 to have you employed. All of which must be recovered by increased productivity. The employer must then seek ways to lower real costs and restore both the gross and net revenues to an acceptable level. He can automate, reduce workers hours, not provide health insurance coverage, etc. Some will be laid off. These additional costs can only be recovered through increased productivity. Be careful what you ask for!
As my late friend Harry Browne said: There is a price that must be paid for everything. Everything you do has a price that must be paid. Some costs are high, some are moderate. They must, however, be paid. Was Harry Browne right? The increase in the minimum wage is a noble venture. It is, however, not a well thought out venture. It is as I have said many times, Keynesians and their followers are not evil people, they simply do not follow ideas to their logical conclusions. They think only of the feel good quality of the offering help. That's all that matters. Not results of their mis-guided actions. Never forget opportunity cost---it is real! Consider what has happened in Seattle because of their $15 an hour pay rate. Business are closing or moving out of the city and into the suburbs. The average wage for workers has gone down by $125 a week. There is no such thing as a free lunch. Could this happen here in Orlando?
There are 9 embedded questions.
Addendum:
Since I wrote this Discussion Board we have had the tax cuts, Jan. 1, 218, and a great reduction in regulations (nearly 1500). The result has been a dramatic cut in corporate taxes which has led to an increase in business investment of a 39% over 2016s investments. This has allowed business to voluntarily increased wages. Unemployment is now the lowest it has been in 50 years. Unemployment among black workers is the lowest it has been since they began keeping records, as is employment among Hispanics.

Explanation / Answer

This concept is really an unanswerable question for employers. Because the employers finding the solution to satisfy the labors for several centuries. However, the employers were unable to find the solutions until now and other side labors also not feeling happy with their wages.

The employer looking for profit by using the labors in their organization or factory. On the other hand, labors demanding the minimum wages based on the market conditions on the outside. Also, the labors demanding minimum benefits for their livelihood like children education and medical allowance.

Here the issue will arise, the employers are not accepting their demands so the labor call for either strike OR reduce the quality of work. Ultimately its negative impact will show on production and its cost as well as its effect is shown on marginal cost. Finally, the usage of goods and service will reduce the figure compared with previous years consumption. The GDP will be reduced badly further.

This is all just happens the normal issue of in between employer and labor. Slowly the issue turns and impacts shown on the national economy.

If the employer at least considers about the labor then they will work effectively and bring the more results in production or for organizations.

Let us see the examples wise:

The employer X hired the labor Henry. The Henry need to work daily 14 hours in return he will get insufficient wages $2. Actually, Henry required $4.5 for his family expenses regularly but he is unable to earn. He is daily spending 14 hours in the X organization so he is unable to do any part-time work anywhere and also he will be tired after spending 14 hours in X organization.

In the above example, The problem will be resolved, if X has given $4.5 as a daily wage to Henry. However, the X is looking for profits as well as maximum utilizing the labor in their production and organization.

Suppose Henry had and insecurity feeling of his job. Suppose, if he came out from the employer X then again he will not get a job either at X organization OR an outside organization. So, Henry compromise with his life but his grievance showing indirectly on production or quality of work.

Examples of different kind of employers:

The employers are categorized into two types. One is maintaining with high standards and their organization works on all over the world like as Mc. Donald or Subway so they will not give any kinds of troubles in the paying of wages for their labors.

However, in another kind category of employers, they have established their organizations on the basis of freelancing from the above category employers. Suppose this is the employer get the contract of work from the Mc. Donald so he is not required to maintain high-level standards so he will give less number of wages to his labors. The issues will arise more here.

If we compared the above examples of employers, the labor wages and maintaining standards are also different. Finally, the production levels and profits for their respective organizations also different.

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