Notes from Guest Speaker Susan Kask, WWC Economics Professor

Alright, so we got a whole bunch of facts about what works make in Buncombe county and all that, someone else can post those. My goal is to attempt to recap the econ part.

Alrighty: How are wages determined?
In theory wages are determined by supply and demand. Demand (the curve that goes down, "demand goes down") is determined by the effectiveness of one additional worker. This is called the marginal product. So long as that additional worker is effective the firm would hire more labor as each additional person would be bringing in a profit to the firm. Lets look at this from a living wage standpoint ($11.35).

The cost to a firm, lets say, Early Girl Eatery is the hourly wage time the number of hours (sorry Ella, here comes some math, but its simple!). So, we'll assume that this new employee is working an 8 hour shift. 8 X 11.35=$90.80 this is the cost to the company and referred to as the price of labor(PL). This is one half the demand equation.

The other half is the Marginal Product of Labor (MPL) the is how effective each additional worker is. So, lets say that our new worker is able to serve 10 more dinners, in theory so long as each dinner cost more than $9.08 EGE would hire the worker as they would be bringing in more than they were costing the firm.

Now, the total demand for labor(DL)=(PL) X (MPL) and would generate a curve that looked something like this:



Thanks to sparknotes for this graph.

So, before we look at policy we need to figure out supply. The supply curve is best thought of as: how much would I need to pay you to work an hour at Early Girl after you were done at Wilson with all of your homework and regular work. For some, this may be fairly low, for others this would be pretty high. This is called your willingness to accept and is basically your wage. If we were thinking about a living wage, the FIRST amount we would offer to try and get people to go to work would be 11.35 an hour. I probably wouldnt do it because I'm a fairly busy guy, some of you might if you have more free time.

*Both the Supply and Demand curves aggregate everyone's individual preferences and is basically a line of best fit. So, this would mean that at $11.35 LOTS of people would probably want work*

A supply curve looks like this:


One of the things Susan briefly touched on that Rachel F and I both oggled at was when the supply curve doubled back on itself. For our purposes this only happens in the labor market. This is basically people saying that at a certain price, less people will begin to work in the market. Thing about it in marginal terms (one additional unit). If I'm paying you $1oo to work an 80 hour work week your working a lot. However, when I start to pay you, say, $110 a week, your going to think, well, wait a minute, if Gideon is paying me more, than perhaps I dont need to work as much. Anyway, not important.

Susan then went on to discuss a whole bunch about policy shifts, but I'd really need to draw these graphs out to explain them. I dont have the energy at the moment, but some day I will. So instead I'm going to double back and talk about what Susans survey was trying to help with (thing about the Demand curve again).


Total demand for labor(DL)=(PL) X (MPL)

Remeber what all that means?

So, for a living wage the Price of Labor(PL) is equal to $11.35. Her survey was attempting to find the price in the price X output equation (remember, (MPL)=additional output X $)

Lets try and apply this. Early Girl Eatery currently has, say, 10 people working a night and there's tip sharing and everyone gets paid the same: $10.00. Currently the place serves 250 meals every 4 hours for an average price of, say 15.00. So:
Every 4 hours EGE makes: $15.00 X 250=$3,750
Every 4 horus EGE pays its workers: $10.00 X 8 X 4 = $320.

Now, lets say that for every 4 hours supplies, rent, maintenance and other operational costs equal $3,000, leaving $750 left over for the owners. Now, the owners are pretty reasonable people and think that, because of everything they do for the community and the risks they assume by owning and running the eatery that this profit margin is correct, and regardless this should stay the same.

So here we come and inform them that they should actually be paying everyone $11.35 and hour, a full $1.35 more than they do now. Without changing anything, operating costs would still remain the same ($3,000), income would still remain the same ($3,750) but wages would go up ($11.35 X 8 X 4) to $363.20. Now, theres a bit of the problem because the owners are making less than they were before and are thus able to do less for the community and live less comfortably themselves, and well, generally thing this is a bad idea.

What Susan's survey is trying to do is show that consumers will pay more for that dinner (say, $16.00) if they know that the employees of the store are being paid a "living wage".


I'm not sure if this helped at all, honestly, its hard to explain when not in person, so if anyone wants to sit down with me for a bit and hear me talk a lot I'm up for it. I'll try and scan in some more graphs relating to unemployment, what happens when migrants come in and what happens when the minimum wage is set too low, but, I make now promises.
Hope this helped somewhat...