[Puffer Fish]

I have a conjecture that, for many of areas of the economy, higher labor costs and higher consumer prices will favor small businesses, whereas lower labor costs and lower consumer prices will favor very large corporations.

This is due to two factors. First, smaller businesses are more flexible and can better tailor themselves to worker's needs and desires. Second, with workers being less of a commodity, it gets harder to support the bureaucracy of a large corporation. A larger share of the profits are going to go to the low level workers.

A corporation's primary efficiency is harvesting the cheap labor power of workers, when that labor almost exists merely as just a commodity. A corporation is all about how to direct that labor, where the cost of labor is insignificant. A corporation can afford to waste labor or inefficiently use it, since it is cheap.

In other words, the supply of the labor relative to the demand for products and services will dictate whether small businesses or huge corporations dominate in the economy.

If this conjecture is true then it is has huge implications for the economy and economic policy.


I can give two real life examples of this theory in action. The rise of Walmart in the U.S.
Immigration decimates smaller family owned farms in New Zealand

In Marxist theory there's a dictum that states that mode of production determines economic & societal structure.

[Puffer Fish]

So when you have a big corporation complaining about labor shortages, and how they don't foresee their business being able to survive, they may be partly correct. Their business model may simply be non-viable.
But if you go back decades in time, it was mostly smaller businesses doing what that big corporation is now doing.
A labor shortage disrupts the economy, and it's not always so easy to adapt. It can take several years to adapt, with rising prices for potential small business owners to see there is a niche that they can get into and establish.

[MistyTiger]

I have a question and I'm wondering if you can explain this to me. How can labor costs be lowered? If anything, labor costs will continue to increase. For instance, you need a plumber to fix the pipes in your kitchen sink. Do you think he will do the job if you tell him you'll pay him half his going rate? I'm afraid not. Odds are, his rate is high in part because he drove quite a distance to reach your home and he needs to reimbursed for his time spent on the road. Labor costs have always been high in the USA.

And corporations have a way of dominating small business because corporations have more resources and more working capital. So the title of this discussion post doesn't seem to make much sense to me.

If you have labor shortages, it's not always that the corporation can solve the problem. A major trend we're seeing now is that a considerable amount of the population is turning to either self-employment or they're downgrading to part-time. There are those who want to slow down and be with their family more and businesses cannot deter people from making these kind of life-changing decisions.

[Puffer Fish]

I have a question and I'm wondering if you can explain this to me. How can labor costs be lowered?

That's a really complicated (and kind of controversial) question that would deserve its own separate thread.
One way the cost of labor could drop is, for example, if there were mass number of layoffs in some other sector of the economy, and suddenly you had a huge pool of desperate workers who needed jobs.
Another way might be lots of immigration coming in from poorer parts of the world.

Usually lower labor costs are a bad thing for the worker, but that might not always necessarily be the case. For example, perhaps there might be some technological improvement that increases worker efficiency and that sector of the economy doesn't need to employ as many workers. Can be a good thing in the economy, especially if it involves the lowest paid jobs. But that is a separate big issue we could delve into as well.

For instance, you need a plumber to fix the pipes in your kitchen sink. Do you think he will do the job if you tell him you'll pay him half his going rate? I'm afraid not.

The majority of jobs in the economy would be done for less money if that worker had no other options. Or if you brought in other persons into the picture who were not doing that job before (because of whatever disconnect).

Think about what's the minimum amount of money you would be willing to do a job for if all your other possible options were even worse.

When you talk about a plumber doing a job for someone, that's a specific task done for an individual. The plumber has other customers.
If you think about some plumber who lives in a Third World country, he's going to work for much less. There do not exist enough customers that can pay him more, better options do not exist.

[Puffer Fish]

And corporations have a way of dominating small business because corporations have more resources and more working capital. So the title of this discussion post doesn't seem to make much sense to me.

Well, there do exist other reasons for big corporations dominating over small businesses, of course, but I am a just focusing on one part of that here.

If you have labor shortages, it's not always that the corporation can solve the problem.

If you're saying that, I'm thinking you may be confused, or not have understood my message.

I didn't say corporations could solve the labor shortage problem. Rather just the reverse. Corporations DO NOT work as well when there is a labor shortage. That was my claim.

[MistyTiger]

That's a really complicated (and kind of controversial) question that would deserve its own separate thread.
One way the cost of labor could drop is, for example, if there were mass number of layoffs in some other sector of the economy, and suddenly you had a huge pool of desperate workers who needed jobs.
Another way might be lots of immigration coming in from poorer parts of the world.

The way you crafted the OP seemed to suggest that you think that it is easy to just lower labor costs and then...problem solved! It is not so easy.

Usually lower labor costs are a bad thing for the worker, but that might not always necessarily be the case. For example, perhaps there might be some technological improvement that increases worker efficiency and that sector of the economy doesn't need to employ as many workers. Can be a good thing in the economy, especially if it involves the lowest paid jobs. But that is a separate big issue we could delve into as well.

Automating some processes can reduce the need for labor, however someone has to be around to maintain the machines when they break down and they will break down sometime. When machines are down, efficiency goes down. Nothing is produced during the "down time".

The majority of jobs in the economy would be done for less money if that worker had no other options.

But will living costs be lowered just because people cannot afford to pay? Or if someone has a mortgage on their car and they cannot make a payment on their car. Will the bank say it's ok and not reposeess their car? No. The person signed the contract when they could pay and once they cannot pay, they automatically violate the contract. The bank does not care if a person cannot pay up, they want the money guaranteed in the contract.

Think about what's the minimum amount of money you would be willing to do a job for if all your other possible options were even worse.

Again, living costs are the same. A person usually wants more pay to pay for living costs. Some people are still working past the age of 65 because they cannot afford their lifestyle if they retire....they'd barely be able to afford groceries and rent. If they can still work in their 80s, they will.

When you talk about a plumber doing a job for someone, that's a specific task done for an individual. The plumber has other customers.
If you think about some plumber who lives in a Third World country, he's going to work for much less. There do not exist enough customers that can pay him more, better options do not exist.

Yes, but we are not talking about Third World. In Third World countries, living costs tend to be much lower than in developed First World countries. Pay rate should be more proportional to costs of living.

In the US a plumber will not lower his rate by half. He still needs to pay for fuel, tooling costs, manpower rates, utilities, rent, food...no one will give him a break. The electric company will not halve the electric unit rate if he asks. The industry maintains the rates and actually last summer, there was about a 30% increase for some Eversource customers. As customers, you just pay it or go without electricity.

[late]

Big business has been beating the crap outta small business for maybe a couple generations. On top of that, wages are going up.

[Robert Urbanek]

It seems that every time Congress cracks down on businesses, they carve out an exemption for businesses with few employees and yet that doesn't seem to make a difference in the long run.

And, if you are an employee, don't expect much of an advancement in a small family-owned business if the top job is already reserved for the son or daughter.

[Puffer Fish]

Big business has been beating the crap outta small business for maybe a couple generations. On top of that, wages are going up.

I believe there is a logical and reality disconnect to what you are saying, because we have to look at more specific periods of time.
Of course that makes the analysis more complicated.
I'm thinking of periods of time over around 15 years, 20 years, 35 years.

(And I really don't want to make this complicated, but obviously we are talking about wages adjusted for inflation and cost of living. We're not going to play stupid here and pretend that $2 today is more than $1 was in 1990. )

The rise of Walmart, for example, coincided with a period of time where the real wages of unskilled workers were going down.
Same thing with the corporate takeover of farms, or the consolidation of the meat packing industry.

[late]

I believe there is a logical and reality disconnect to what you are saying

If irony was explosive, that would be some number of gigatonnes...

If you had so much as a vague clue, you would never have mentioned Walmart. It's the perfect example, for me.

Walmart uses political programs (that provide funding) and political clout to establish new Walmart stores cheaply. They then kill many of the local stores by undercutting their prices. Which sucks the life out of towns and small cities.

It's a monster sized parasite.

Go find out how and why the tax code is great for big business and the rich, but sucks for most small business.