Don't believe corporate rhetoric and punditry on labor and pricing

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On "Morning Joe" I recently heard the speculation that since labor accounts for about 30 percent of the costs of making a hamburger, if labor costs doubled by doubling the wage of fast-food workers to $15 an hour, the price of a hamburger would also double. A little bit of algebra would reveal that the costs would not double in the above scenario but would increase by another 30 percent.

But this cost increase is only a partial accounting of the asking price for that hamburger. Faced with the prospects of having to increase its hourly labor costs, large fast-food corporations would have several alternatives to keeping their prices from rising so high that the prices would reduce consumption. A company could either reduce its profits or find a more efficient way to produce and market its product. I'll bet that when the dust settled the selling price of a hamburger would go up only 10 to 15 percent if labor costs doubled.

The fact that our media produces such ridiculous exaggerations of consumer price increases for higher labor costs is a testament to two things: both the greed of corporate entities along with their willingness to tell lies to support their profits and the gullibility of the public in believing those distortions. It doesn't say much about the ability of media pundits or their audience to do algebra either.




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