A Brief Primer on Equilibrium Wages

This concept came up in another thread. This seems to explain the concept pretty well. Suffice it to say when there is artificial influence on wages, such as a minimum wage or illegal workers, equilibrium is lost and a surplus of workers (unemployment) or shortage of workers (inflation) results.

http://www.sparknotes.com/economics/.../section1.html

Granted, the article does explain it, but as usual it is an explanation "The American Way"

Edit:
before you ask: What is "The American Way"

Here it is:

Why Would You Do Something The Easy Way If There Is Also A Complicated Way You Can Do The Same Thing

This is true for about everything I have experienced during my 10.5 years in the USA

Huh? Equilibrium analysis is not confined to the USA. It is a law of economics. It does not discriminate on any basis, including race, religion, orientation or nation.

Wave, remember, limit yourself only to your prescriptions. It's dangerous when you get away from those.

Huh? Equilibrium analysis is not confined to the USA. It is a law of economics. It does not discriminate on any basis, including race, religion, orientation or nation.

Wave, remember, limit yourself only to your prescriptions. It's dangerous when you get away from those. Originally Posted by CuteOldGuy

I know, it's not the law in itself, it is the way it is written. 100% sure by an American writer.

Well, duh. We are in America.

Whether a given worker is called legal or illegal doesn't effect wages being in equilibrium. Adding x number of workers to the existing labor pool, all other things being held equal, will lower today's equilibrium price no matter whether they are deemed legal or illegal. That is just a way of labeling the worker.

And yes, a wage floor is one way to create excess labor. But there are huge bodies of economic evidence to suggest that even in cases where the equilibrium wage is well above the minimum wage, you can still end up with excess labor capacity. This is where the entire sticky wages issue comes from. Of course prices cannot remain sticky forever, but sometimes they are sticky for very long periods of time.

Whether a given worker is called legal or illegal doesn't effect wages being in equilibrium. Adding x number of workers to the existing labor pool, all other things being held equal, will lower today's equilibrium price no matter whether they are deemed legal or illegal. That is just a way of labeling the worker.

And yes, a wage floor is one way to create excess labor. But there are huge bodies of economic evidence to suggest that even in cases where the equilibrium wage is well above the minimum wage, you can still end up with excess labor capacity. This is where the entire sticky wages issue comes from. Of course prices cannot remain sticky forever, but sometimes they are sticky for very long periods of time. Originally Posted by TexTushHog

You need to study Samuel Gompers a little closer. He would disagree with your notion of where "excess" workers come form, and their impact on wages. One hundred years ago, labor unions were among the most vocal advocates for immigration quotas.

The problem with reaching equillibrium wages these days is that we're in a globalized economy in the process of reaching a new global equillibrium - that means standard of living rises in some areas and drops in some areas. It'll be painful for the American worker but we can't claim to be capitalists only when it's convenient. This is the downside of the global economy. You see today that corporations continue to report record earnings, yet most of their growth is not in the US, which is why they're not hiring in the US. As long as revenue and earnings continue to grow outside of the US, this trend will continue, until we're in a depression and the $14T US economy shrinks as the demand for goods and services dries up. What's going to make this even more painful is that we're no longer outsourcing low skill jobs and therefore a larger percentage of the population will eventually be impacted by the adjustment. I'm a proponent of free markets but you have to remember that there are always winners and losers in this game and this time it'll be our time to lose.

The problem with reaching equillibrium wages these days is that we're in a globalized economy in the process of reaching a new global equillibrium - that means standard of living rises in some areas and drops in some areas. It'll be painful for the American worker but we can't claim to be capitalists only when it's convenient. This is the downside of the global economy. You see today that corporations continue to report record earnings, yet most of their growth is not in the US, which is why they're not hiring in the US. As long as revenue and earnings continue to grow outside of the US, this trend will continue, until we're in a depression and the $14T US economy shrinks as the demand for goods and services dries up. What's going to make this even more painful is that we're no longer outsourcing low skill jobs and therefore a larger percentage of the population will eventually be impacted by the adjustment. I'm a proponent of free markets but you have to remember that there are always winners and losers in this game and this time it'll be our time to lose. Originally Posted by thehobbydude

Exactly....well not the top 1% of the top 1%They are doing pretty good and will continue to do so.

The problem with reaching equillibrium wages these days is that we're in a globalized economy in the process of reaching a new global equillibrium - that means standard of living rises in some areas and drops in some areas. It'll be painful for the American worker but we can't claim to be capitalists only when it's convenient. This is the downside of the global economy. You see today that corporations continue to report record earnings, yet most of their growth is not in the US, which is why they're not hiring in the US. As long as revenue and earnings continue to grow outside of the US, this trend will continue, until we're in a depression and the $14T US economy shrinks as the demand for goods and services dries up. What's going to make this even more painful is that we're no longer outsourcing low skill jobs and therefore a larger percentage of the population will eventually be impacted by the adjustment. I'm a proponent of free markets but you have to remember that there are always winners and losers in this game and this time it'll be our time to lose. Originally Posted by thehobbydude

Very true.

This concept came up in another thread. This seems to explain the concept pretty well. Suffice it to say when there is artificial influence on wages, such as a minimum wage or illegal workers, equilibrium is lost and a surplus of workers (unemployment) or shortage of workers (inflation) results.

http://www.sparknotes.com/economics/.../section1.html Originally Posted by CuteOldGuy

If a industry picks up and leaves this country because this country won't let so called illegal workers in, who loses?

Who gets to chose who can work in this country and who can't?

You are talking about a very complex issue in simplistic terms.

You're all getting lost in the political rhetoric. 10 million illegal immigrants, 20 million illegal immigrants don't make a difference in a global labor market pool. Just between China and India you have over 3 billion people, south of the border we have another 700 million people, all making a hell of a lot less money than we do here in the US. These people are hungry to become the next USA and will get educated and will produce not only products, and services, but eventually all the intellectual property that made the US the greatest country on earth. So you see, the problem with the US is not necessarily illegal immigration, it's that we're competing against lower wages in countries that have both the capacity and the capability to supply the world. And that my friends is not an easy fix. Paradoxically, kicking out all of the illegal immigrants might even make us less competitive as that's a labor pool that's already working for wages on the lower end of the spectrum. This doesn't mean I'm in favor of illegal immigration, as an immigrant myself that waited 10 years in my home country to become a permanent resident, I expect everyone else to get in line just like I did, but ultimately it's not illegal immigration that's causing our fundamental problems. Our politicians want you to think that's the problem, and it is a problem, but it is not THE problem to solve.

Who gets to chose who can work in this country and who can't? Originally Posted by WTF

Well, I guess someone does, or they wouldn't be ILLEGAL!!!

And TTH, if we take the US economy, and add illegal workers who will work for less than the American equilibrium wage, then it does bring down the equilibrium wage. It's an external event which pushes the Supply curve to the right, decreasing wages.