by Antonio Graceffo, PhD. at China Econ Group
Globalists will argue against these two laws of economics: Increasing the minimum wage will cause unemployment and increasing the labor supply by allowing open borders decreases wages.
Supply and demand is one of the simplest, but most important concepts in economics, taught within the first weeks of the first semester. Being a market economy, our entire system is built on supply and demand.
People who tell you that supply and demand doesn’t exist or applies everywhere but in the labor market are delusional.
The U.S. is facing inflation right now, so the Fed is raising interest rates. Interest is the price of money. By increasing the price of money, the Fed is lowering demand for money, which will curb in inflation.
We know that demand generally decreases as prices rise. Increasing minimum wage to $15 would cause a sharp decline in the demand for labor. Fewer new companies will open and some existing companies will close because their operating costs will be too high. Labor represents 30% of cost for many companies, that are already operating on profit margins of 3-8%. Doubling the cost of labor would wipe out their profits and force them to operate at a loss. Companies that remain open would cut hours/shifts of employees and increase automation, to decrease the size of their payroll.
In the other direction, when there is a surplus, too much of something, the price goes down.
When the first warm sunny days of March arrive each year, retailers recognize that they need to clear out their winter clothes. Do they do this by increasing the prices or decreasing the price? They decrease the price. The way the market corrects for a surplus is by decreasing price. The U.S. generally has a low unemployment rate, but the U.S. does not suffer from a shortage of labor. With open borders, the U.S. winds up with a surplus of labor which the market corrects for by decreasing wages.
#economy #china #immigration #industry #manufacturing #trade #tradewar #tariff #reshore #Factory
