Preface

Research has always been weaponized, most people won’t recognize it. However, you can easily spot weaponized data if the research is focused is around price. Especially, when price is used interchangeably for value. This is the biggest trick in the book. Price is just a communication tool between supply and demand. It, in of itself is not value. Regarding the minimum wage debate, price controls have never been used to raise pay. They have always been a legislated attempt to price people out of the market.

The real minimum wage is $0.

The real minimum wage is $0. This is indisputable because that is the state of being unemployed.

Even if you are on help or have savings to use, you are not trading your labor for money. That is what a wage is. If the quoted “minimum wage” is $13/hr, the all you are saying is no one is allowed to hire you between $0/hr and $13/hr. That range is now illegal.
So there’s a remarkable sharp cliff to where employment just cannot happen. Labor is a resource, just like buying vegetables from a grocer. If a law is enacted that all groceries are to be sold for no less than $13, then you’re in quite a bind. If you have valued brussel sprouts over $13 before the law is enacted, then you might not act so drastically to this change. But if used to value grapes to be less than $13 before, then you’re going to really evaluate if you will buy grapes again.

The Price Reaction Train Buckles

Of course prices aren’t static, everything will react accordingly:

  • The grocer might raise prices of everything else relative to hike. For example, meats were originally $7, now they are $25.
  • You and your colleagues will try to get a raise from your boss since you’ve all felt that the cost of living has gone up. Now he pays more if he thinks you’re valuable. If not, he will do nothing.
  • Your grocer might take this opportunity to get rid of lower valued groceries in favor of more profitable ones.
  • Your grocer might sell lower cost groceries in bundled bags. For example, a pack of grapes are now $25.
  • etc…

Essentially, everyone is attempting to compensate for their losses by adjusting their prices accordingly.

The prices reaction train will react rather fast, but in the small gaps of buckling, every component and actor will adjust themselves unevenly. In the small crevices between the buckling you’ll have moments where one party isn’t clearly sure what is happening. They think that costs are going up. Thus, there is a tendency for everyone to become averse to risk and losses.

Imagine you are an employer. Suddenty, you are told that you have to increase your wages. Your customers are not anticipating that their prices will go up. You know how sensitive customers are to a change in price. So you anticipate that you won’t be able to bear the cost of payroll next month. Some of your employees aren’t the best performers, so you lay them off. If the law is enacted in stages like it is in Seattle, all other employers react slowly as the law is phased in. The prices of labor, wages, and cost of goods and cost of living all increase gradually. Your employees are still getting somewhat the same wage because everything around them has inflated. They have no more disposable income because the delta of costs and pay have both moved in the same direction. No value was created, it was just pushed into a different place.

Price is just a messenger about how the demand and supply are talking to each other. Artificially raising or lowering the price is preventing the demand and supply from communicating with each other effectively. In this lapse of clarity, people act surprisingly rationally about cutting their costs, going around the pricing barrier in illegal or ingenuous ways etc…

The problem is in the moments of the reaction train buckling of all the parties. People are not communicating with each other clearly. Customers aren’t sure what their new “normal” is, suppliers either under-estimate or over-anticipate buying behavior… In the gaps of these cost rippling, many employers will consider mechanization or automation to preempt any losses. Customers will also preempt by buying less. They will normalize but the fundamental issue is that employers aren’t likely to replace their new kiosk for the employee that they laid off.