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Tradewinds April 2005 Fiinal Web

April 2015

Labor, Wages, and Prices

Labor, Wages, and Prices by Matt Morrison Last month we explored the relationship between wages and inflation as a response to the postulation that a high minimum wage can cause some businesses to lose customers by way of price increases. While I agree with my friend who made this suggestion, he did not stop there. [My friend did not stop in his discussion on minimum wage hikes.] He further claims that the primary ways to increase real wages include deporting illegal aliens and prison terms for anyone who hires such immigrants. “Adam Smith had this sussed out in 1776,” he says. On the surface one may reason this has merit as a reduction in the labor pool should drive up the price of labor. But would Adam Smith agree with such a policy? [Find out in next month’s issue of the Albemarle Tradewinds.] [Following last month’s discussion of the relationship between wages and inflation, this month we’ll conclude by discussing the implications for immigration policy and what we can learn from Adam Smith. Obviously,] If immigrants did not increase production, there would be no incentive to hire them. So while immigrants cheapen the labor pool by driving down some wages, that necessarily means an increase in production, which means a decrease in prices. All things being equal, at worst an increase in labor supply has no effect on real wages due to falling prices. However, due to the sticky wage principal, wages tend to change more slowly than prices, therefore in the short term the effect of falling prices is often to increase wage power. This is not to mention the benefits of increased production vs. other nations and improving the balance in trade. And who would be against having a wider availability of goods domestically, rather than having to import more? Finally, it is often assumed by many that immigrants only take jobs, but it’s not as if they can mail order all their groceries from overseas or live off of bark. As with almost any worker, immigrants consume production as well, driving the economic engine. Read next month’s issue for a conclusion to this economic discussion. Halstead @ GAATS, You Relax, We do the Tax el CinoCa eHringHaus MCCartHur Mall 1502 Ehringhaus St. Bookkeeping, Payroll Services Income Tax, IFTA, etc. Free ITIN # w/paid Tax Return “LIBRE ITIN” 10% DIScouNT GAATS, LLC Godwin and Associates Tax Service, LLC TAX SERVICE 252-331-5859 Call office for details! We are next to Dunkin’ Donuts. Phone # : 252-771-0200 Circa 1928-1931 Model “A” wheel and tire Located at 2nd Tyme Around 102 Mullen Rd. South Mills. 12 Albemarle Tradewinds April 2015 albemarletradewinds.com

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