Month: January 2006

Another way to explain how companies cannot determine the wages they pay is by looking at the direction in which the control moves. Most people see their boss and their company as being in control of wage setting. They decide what their limits are, but so do you:-) They have to react to the labor market, the labor market does not respond to them. The same applies to what companies charge for products or services, they have to price according to the market.

If the company ignores market prices for either products or wages, weird things start happening. We all know what happens if they price their wages far below the labor market or if they price their products way above the market value, nothing. Laborers and consumers will stay away in droves. What happens if they go the other way? What happens if they price way below market value or hire way above going rates? In the example of products being much cheaper, it’s pretty easy, they sell more. That isn’t necessarily a good thing though. They make less on each product they sell of course, but their costs could also go up with a big enough volume. Usually, production costs start out very high for small quantities of products made and drop as you make more and more. This is primarily due to economies of scale (better prices from suppliers, maximization of usage of facilities, etc.). If you keep going up in volume, prices to manufacture per unit will eventually go up as you max out your factories capabilities, have to pay more overtime etc. The upshot is that companies will set their production so that they manufacture at the lowest cost per unit thereby maximizing profit. If they start selling more due to price reductions, not only will they make less per unit but they’ll also pay more per unit to make the things.

Pricing wages above going rates also causes problems. The biggest one being that the company cannot afford to hire as many people. This in turn means that their maximized profit production has to be with fewer items made and that equals even less money for the company. Not only that, it means higher prices and/or fewer products for the consumer because of reduced productivity and higher prices that are usually required to maximized profit. Usually the argument about raising wages (and benefits are just another form of compensation) is talked about the most when it comes to low paying jobs and especially in third world countries. Here’s the thing, higher wages means less employment and higher prices. Both of which hurt the poorest far more than what the few lucky workers gain. I’ll talk about how raise living standards and wages in another post.

The markets for goods and services are made up of all of the transactions that occur all the time. Price changes up and down are out of the control of individual firms and individual workers. There’s a reoccurring myth that corporations are controlling the world through wage and price setting. There’s another popular myth that workers need to be protected from corporations “greed”. It is the quest for profit that employs all of us and produces all of the products and services we consume. Prevent prices from being set at market levels at your own risk…

Isaac

There’s a lot of confusion over the subject of wages and who is in control of setting them. It came up (again) in my discussions about walmart. If you ask someone “Who determines the wages that Walmart pays?” they will usually say Walmart of course. Actually, they have very little control, at least as far as how low they can set wages. Setting them as low as possible and still hire the most qualified people is every businesses aim. But Walmart is unable to make everyone work for minimum wage, they are forced to pay some people more, and sometimes that even includes entry level jobs!

It isn’t so much a who that sets wages, it’s a what. The market sets the value of anything that can be bought or sold. Just as a company cannot charge a million dollars for a pair of shoes, they cannot hire someone at whatever low salary they want either. They can set prices and wages anywhere they want to, but no one will buy from them or agree to work there unless the prices set are in the ballpark of the value set by the market. If walmart wants to hire low skilled workers at minimum wage, but those people could go to anyplace and get 8 bucks an hour, no one will work at walmart until they raise their wages. On the other hand, if walmart offers jobs at minimum wage and their aren’t any other jobs to be had, or if other jobs paid the same but were much worse jobs, then walmart would have plenty of applicants.

So the answer to who sets the low mark for wages is both no one and everyone. It isn’t your boss, and it isn’t walmart, it is the market for labor that sets the standards.

Isaac

The outgoing president of the Washington area metro is getting a severance package of 116,000 a year, for the rest of his life! When he dies, his wife will get something like 60 grand a year. A metro spokesman said that they can’t get out of the contract, what I want to know is what idiot, or group of idiots thought that was OK? Seeing how a large part of metro is subsidized, I hope that there is some sort of lawsuit is brought against them for negligence, incompetence, or something…sheesh!

Isaac

But you might think I did based on my last blog post and this morning’s op-ed piece in the Washington Post. Maryland is on the verge of passing legislation (over the governor’s veto) that forces any employer of over 10,000 people in Maryland to pay at least 8% of their payroll towards health insurance. Guess how many companies it affects… one. Go ahead and guess which one, that’s right Wal-Mart.

I really cannot believe the stupidity of the Maryland legislature. There really isn’t any doubt what will happen if this is passed, Wal Mart will close at least some of its stores in Maryland. Lots of people will lose jobs and more importantly, lots of people will be forced to pay more for the same stuff they bought before. Keep in mind that right now people have a choice of where to shop, many choose Wal Mart strictly because they can’t afford to go anywhere else. . I find it appalling that the government’s short sightedness will cost people so much. Will anyone benefit? Surely not the people that the law is supposed to help. People that work at Wal Mart will, overall be worse off due to the inevitable loss of jobs even if they do not close down stores. 8% is a big chunk of change, especially when your business model is based on low margins. If you read the links I posted in my last blog post, you’ll know that Wal Mart’s competitors will be the clear winner. In their best case scenario, they will be relieved of their most fierce competitor. Read Walter Williams’ very short piece again. I’ll even post the link again here.

The Post, to its credit, had pretty much the same stance on this as I do. They too found the Maryland senate’s actions to be the worst kind of lip service to protecting workers. Taking away jobs and limiting competition is only ever good for a very small group of people. The rest will pay for that privileged group.

Isaac

Yet another great post over at Cafe Hayek. You can read it here.. Some worthwhile and thought provoking quotes:

“When we subsidize things that trade in the market, we benefit the well off and well organized at the expense of the most vulnerable members of society. This holds true whether in Bozeman, Boston, or Birmingham.” This includes labor by the way. The labor of a worker is just another thing that is traded on the market.

“The world is divided between those who do and those who do not understand that activist, interventionist, regulating, subsidizing government is generally a servant of the strong and entrenched against the weak and aspiring.”

“The world is divided into two kinds of people, those who want to prosper by competing and those who want to prosper by getting government to cripple their competitors. America is divided between genuine entrepreneurs and those persons whose entrepreneurship consists of turning government into a dispenser of privilege and injustice.”

There is a thing in economics called the law of unintended consequences. In a nutshell, it describes what happens when you concentrate only on the obvious, immediate effects of something while ignoring the unseen (because they are not allowed to happen) consequences. In every case, the powerful, the power mongers know exactly what will happen when government regulations limiting competition are passed, the general public goes along with it because it “sounds right”. I cannot emphasize enough that whenever a law that suppresses competition is passed, it is the few that benefit and the many that suffer.

If you would like to see what the hell I’m talking about, read this and this.. That last link is to one of Bastiat’s best essays, and everyone that I know that has read it cannot disagree with it regardless of their political leanings. It’s an eye opening read, it certainly changed my views on many things…

Isaac

Just got a book in the mail today. “An Introduction to Error Analysis.” Looks like a pretty good statistics book, trouble is that I did not order it. It came from a shop in Erie Pennsylvania with no note or bill or anything inside. It was def. addressed to me, so I’m not sure what’s going on.

Isaac

The so called oldies station does a pretty good job of avoiding playing the same songs every day, but they do have the habit of rotating what seems like 15 or 20 greatest hits cds all day long. This is how I heard “That’s the way I’ve Always Heard it Should be” on the way to Jaime’s place and “You’re so Vain” on the way back (both by Carly Simon). It always amazes me how much pop music changes over the years. At one time, “That’s the way…” was actually considered deep and insightful, maybe some people still do… Nowadays it really sounds self absorbed and obvious. Certainly compared to “You’re so Vain” it pales in comparison.

I keep threatening to add to my website, I think the next part will be about how to approach and enjoy various types of music. My own types include rock, jazz, hip-hop, popular, country, and classical (with a little “c”). Popular music can take on the trappings of some of the other types, but is set apart in a couple of ways. If I ever get this amp thing started I’ll get right on this… Just one more thing added to the list.

Isaac

Had an interesting experience the other day at work. Kenji called me over by name to help him with some sort of paperwork issue, the lady he was helping asked me inquisitively, “Is your name Isaac?” I’m always a little concerned when people ask questions like that, especially in the way she asked, it was a little more intense than usual. I told her that yes, my name is indeed Isaac, she grasped my hand and went on a prolonged, sermon like monologue that went on for some time. It was a bit circuitous, but she did have a point of some sort… It went something like this.

Just been working. Mom was up for the weekend, that was nice. Saw Jaime, Cindy and the kids for far too short a time on sunday, we’ll have to get together again soon. I went up there to drop off my old FrankenMac, he loves those old machines and mine had quite a few choice parts to make them go. Hope he has as much fun with it as I did. Oh yeah, it has finally happened, I need to get a cheap Windows box to run some software. All of the stuff for designing are for windows only and virtual PC was making me tear my hair out. I think I’ll get one of mom’s office’s old ones, add a soundcard (for turning it into a oscilloscope/fft analysis/ tone generator) and I’ll be ready to go.

Speaking of audio stuff, I’ve ordered my first parts, well first part at least. I’ve decided to build myself a bench power supply. Found a good transformer on Ebay, now all I need is a variac, some capacitors (hmm, wonder if the ones I scavenged would work) and some bridge rectifiers. I figure it’ll be able to put out over 500v DC off of it’s primary winding and around 150v dc off of the secondary windings. Having a variable bench supply will make it much easier to build and design stuff, plus it’s a good practice for making an amp’s power supply… I was reading a guy’s site (tubelab) and he had the good idea and common sense to buy several cheap multimeters and hook them up to the circuit, and THEN turn it on. You can make your readings without having to poke around potentially lethal voltages and then turn it off. Makes a lot of sense, especially since I can buy seven of these things for around $100 these days, cheap insurance. Once I have the supply set up, I can start the amp experimenting/building!

Isaac

I am down to 210 from 223 at thanksgiving. Of course being sick for the past couple of days makes it easier to lose weight. Anyway, I’m taking the positive out of this:-) Makes the resolution to get down to below 200 by march first look simple. Just got to keep watching myself and I’m there…

Isaac