There is a take that consistently comes up in discussions like this (and indeed is prominent several times on this post), which says "the problem isn't a shortage of workers, it's that employers don't want to pay workers enough." This seems somewhat limited to me, and there is an alternate explanation I would like to explore.
It seems to me rising cost of labor, while good for the people being paid that rising cost, can actually be bad for society overall, because you some businesses and industries will just disappear when the cost of labor goes high enough. And sure, you can respond that those businesses shouldn't exist if they can't pay workers enough, and yeah, fine. But the result is that we just then don't have those businesses (making society worse off?).
For this hotel example -- maybe cost of labor continues to go up, and it's much harder to automate making a bed than vacuuming a floor, and in 10 years, we all generally stay at hotels where robots vacuum our floors every day, but no one ever makes your bed for you -- that becomes a relic of the past.
I live in NYC, so a more prominent example I think about frequently is how we can no longer afford beautiful stone masonry on all our buildings. When labor was cheaper 100 years ago, it was easier to pay someone to carve stone -- now, not so much.
I want workers to be paid a lot so they can live good lives, but it's worth thinking about what happens to society as cost of labor continues to go up, and why the cost of labor is going up in the first place (Baumol's Cost Disease? Land rent?).
Seems like you are forgetting about laborers getting more of the profits of companies and the inverse of non-profitable or barely profitable companies surviving on artificially low labor rates. You mention “society” as if it is distinct from the laborers, but society consists of these laborers.
Laborers get more of the profits of companies and in turn get wealthier. However, the costs of services in turn go up (due to rising cost of labor), so those laborers (society) cannot actually afford more services (provided by people). Workers can more easily purchase goods which benefit from increasing automation and technology.
So, these workers which are capturing more of the profit can afford to buy fancier kitchen appliances and cook themselves better meals. But, can they all then afford to go out to eat more -- when going out to eat is primarily an endeavor dependent on the labor of others (and thus it becomes more expensive)?
No. I am suggesting that laborers get more of the profits and prices do not rise. Business owners actually get less profit. You keep assuming that business owners can and will just raise prices and the markets will bear it, but this is not always the case.
Let's say there is a masseuse. They use their labor to give massages. They are also self employed, so they own their own business. If the cost of labor rises, the masseuse makes more money from giving massages, but this necessarily means that the price of their massages is going up (the cost of labor and the price of the massage are the same thing). Okay, let's take this one step further.
Let's assume that there is a massage parlor, with masseuses who do not own the business, and that the owner of the business has some profit. Cost of labor goes up, and now the business owner no longer has any profit, and it is earned by the masseuses. Yay! However, what happens if/when cost of labor goes up further, and there is no more profit? Prices will rise.
> You keep assuming that business owners can and will just raise prices and the markets will bear it, but this is not always the case.
I think this is my point actually. Markets won't always bear it. Sometimes they will raise their prices and the markets won't bear it, and then the business will no longer exist, and society won't be able to pay for it. E.g., the business of a hotel that makes everyones beds every day, or the business that builds a beautiful NYC building adorned with hand carved stone across the entire facade.
> Cost of labor goes up, and now the business owner no longer has any profit, and it is earned by the masseuses.
This assumes the incremental cost of labor has eaten up all the profit, which is rarely the case. When it does happen and increases in prices are not supported, the viability of this business model is suspect. Basically, the market does not value the “middleman” business owner that does nothing more than rent space to a masseuse. Are they really even a masseuse business or are they an office space rental company?
> When it does happen and increases in prices are not supported, the viability of this business model is suspect.
I think you and the parent poster are agreeing here. Clearly there are degrees to which profit can be reduced, but if a business isn't growing its own profits at the same time as rising labor costs, then at a certain point the business will be just breaking even. Past that point, there is no alternative besides raising prices or shuttering the business.
This is the OP's point about certain businesses maybe not being viable, but society being worse for it. For instance, maybe hotels in all but the busiest cities aren't supported by the market at higher labor costs. Good in terms of workers not being paid peanuts, but bad for anyone trying to drive across the country (and society as a whole).
> in 10 years, we all generally stay at hotels where robots vacuum our floors every day, but no one ever makes your bed for you -- that becomes a relic of the past.
There are plenty of people today who can't stay at hotels that make your bed because they can't afford to stay at hotels at all.
By the same token, 100 years ago most people couldn't afford decorative masonry on their homes in NYC. Working class people often lived in crowded, poorly ventilated fire trap tenements that have long since been demolished.
There seems to be an unspoken "for the rich" after lots of your statements here "making society worse off... for the rich". As another commenter mentioned, there is a similar error with regard to masonry of buildings. I would urge you to consider that for a majority of history, a majority of people could never afford any of these things that you are concerned with going extinct. These things are luxuries.
I mean, I don't really disagree with you. For sure, most all services have in the history of society been mostly, if not entirely, consumed by the rich. For most of society, most everyone has been poor. If you could afford fancy stonework on your house, if you could afford someone to make your bed, of course you were rich.
The past century has seen an explosion of wealth in the world, with many people coming out of extreme poverty, emergence of large middle class in the US, etc. So, the world has gotten a lot richer. But, what does it mean to be richer?
Some things seem relatively obvious -- people have bigger houses. They get to have things like fridges and vacuums. These are tangible goods, for which the cost has fallen in line with increasing specialization and automation.
I'm saying that I think it's interesting that while a richer world can purchase more goods, it can't necessarily purchase more services, since the cost of labor rises in a richer world. Basically, productivity has to increase for people to be able to purchase the services with the rising cost of labor.
I'm not really concerned with the things I mentioned going extinct -- it's not a huge deal if we don't have stonework on buildings in NYC, and indeed if we can build housing faster than before by way of automation, that's great. But many people have wondered "why can't we build beautiful buildings in NYC like they used to?" and I'm basically saying, I think rising cost of labor is the reason, and it's interesting that this goes hand in hand with becoming a richer society.
I am playing a video game now, where I should run a nation. Most of the game is about making economical tradeoffs. I want a GDP growth, so I have to develop sophisticated industries with higher throughouput. These industries has better margins and can afford better wages. As a result, no one wants to work in agriculture. There are three ways out of it:
1) make agriculture more sophisticated, like automatization, which requires less headcount with higher qualification. It is not easy way, requires lots of gov sposored R&D.
2) make food more expensive. This makes life of everyone worse.
3) import food. This is the easiest way, but you cannot import services (like making beds) - you need to import low-wage workers instead.
So, of course there will be hotels where you have your bed made for you, but those hotels will just be expensive. And, by the way, you may order your masonry to be 3D-printed from cement the way no old day mason can do, but it will be quite expensive too.
Victoria 3. By the way, I fount a 4th way: in certain political circumstances there's an option to subsudize wages in certain parts of economy. But that usually makes everything chaotic, with workforce reassigned and goods prices randomizing.
Somehow I doubt you would accept below market rate pay for your own job for the "good of society". You're a valuable professional, after all! But these laboring drones, why they should understand sacrifices need to be made for society! How selfish of them to ask for reasonable pay!
alternatively, labor is the only good, which other abstractions (like money) should subserve. the whole point of an economic system is to distribute the rewards of labor across people. most systems (outside idealistic communism) acknowledge that resources will be unevenly distributed, and then focus on the fairness (aka social acceptance) of the chosen distribution, as most people accept that we contribute differing levels of value to the world's production, and so in turn, accept that we get differing levels of benefit from it.
you're getting confused between economies not being zero-sum games in the long term (pie grows/shrinks over time) but do approximate them in the short term (distribution of today's pie). the cost of labor is not going up relative to overall productivity but rather is going down relatively. so where does the surplus end up? concentrated in the hands of people who aren't constrained enough to deploy capital efficiently in an economy.
so in the hotel example, capital is going to owners who are using it to gamble on capital itself rather than going to workers who typically spend the money and help the economy figure out where to invest for long term growth (and health of the economy and society). cost disease is not even applicable here, though rents are. the economy is increasingly seeking economic rents, which are inefficiencies in the economy because rents by definition don't produce anything.
It seems to me rising cost of labor, while good for the people being paid that rising cost, can actually be bad for society overall, because you some businesses and industries will just disappear when the cost of labor goes high enough. And sure, you can respond that those businesses shouldn't exist if they can't pay workers enough, and yeah, fine. But the result is that we just then don't have those businesses (making society worse off?).
For this hotel example -- maybe cost of labor continues to go up, and it's much harder to automate making a bed than vacuuming a floor, and in 10 years, we all generally stay at hotels where robots vacuum our floors every day, but no one ever makes your bed for you -- that becomes a relic of the past.
I live in NYC, so a more prominent example I think about frequently is how we can no longer afford beautiful stone masonry on all our buildings. When labor was cheaper 100 years ago, it was easier to pay someone to carve stone -- now, not so much.
I want workers to be paid a lot so they can live good lives, but it's worth thinking about what happens to society as cost of labor continues to go up, and why the cost of labor is going up in the first place (Baumol's Cost Disease? Land rent?).