Thursday, October 26, 2017

seeing it for automation, but not the minimum wage...why?

Why can people see the "substitution effect" of automation and technological advance-- but not for the minimum wage and other employer mandates? (Cognitive dissonance, anyone?)

The substitution effect is that higher cost labor or lower cost capital/tech will cause firms to substitute from labor to capital.
But there's also a "scale effect": as production gets less/more expensive, firms are incentivized to produce more/less, requirement more/less of all inputs, including labor.

We know that both effects are in play. If not, all of the tech advance we've had would have resulted in mass unemployment. Instead, we observe some sectoral problems/adjustments and challenges for those whose skills have become obsolescent.


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