Last week, I stopped in a quick service restaurant.  For the youngin’s, we called it fast food before the marketeers took charge.  The drive thru line was long, so I went in.  On the door was a bold-lettered sign: “LOBBY CLOSES AT 5 PM DUE TO LACK OF STAFF.  CALL CONGRESS IF YOU WANT THIS TO CHANGE.”  I enjoyed the political commentary. 

A brief reminder from economics 101:  Supply curves slope upward (“Supply towards the sky!” is how it is presented in introductory classes.), meaning as prices increase, so will supply.  Demand curves slope downward: as prices increase, demand drops.  The equilibrium point is where supply and demand meet.

In many markets today, demand exceeds supply.  In my fast-food example, the demand for labor exceeds the available supply.  The fast-food business has a choice:  raise prices (wages) to induce more supply or reduce demand for labor (cut hours).  Our esteemed politicians, most of whom have never had to make a payroll, generally assume most businesses will raise wages to attract workers.  They seem to have forgotten how markets work:  markets allow choices. 

It is unnatural for a business to walk away from sales.  That is essentially what this business is doing by closing its lobby early.  Its owner is making what he believes is a rationale business decision based on the current conditions of the labor market.  Note that as demand drops (or shifts to the left), prices go down.  As businesses restrict hours, in theory, the price of labor should go down.  The government has essentially put a floor on wages with the current unemployment benefits it offers, limiting the potential reduction in wages.  What does this all mean?  If conditions do not change (specifically, an increase in labor supply), we will eventually have stagflation:  low growth, higher prices.

The market is beginning to adjust in ways the government did not expect.  Expect more surprises as the world opens up. 

Comments are closed.