Sauron,
So, you really are making the argument that because managers tend not to downsize, they don't have the option of downsizing. Wow. What you are calling a “list of restrictions” is actually a list of options that you, as a manager, would have. If the minimum wage goes up, the price of labor for your company may go up.
Where do you get the money to pay for it? Feel free to add to the list if you want, but to claim that the statistics prove that a certain option doesn't exist is silly.
You don't have to assume a market in perfect equilibrium, a business at full profit maximization, perfect information, or mobile assets. You have been handed a higher labor cost. How do you pay for it?
Let's say the cost of electricity goes up. What does that do to your home budget? Does it eat into the amount of money you put into the bank every paycheck? Do you work more hours to offset the higher energy cost? Do you lower your energy consumption to reduce the cost? The money to pay for the increased cost of electricity has to come from somewhere, and I bet it wouldn't be that hard for you to identify it in your personal life.
This business case is similar. The cost of labor goes up. You have to pay for it. Where do you pull the money from? Do you modify the structure to reduce labor costs (layoffs, redistributing pay)? Do you try to make more money in an attempt to offset the costs (increase prices)? Do you pay for it out of your profit?
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Originally Posted by Sauron
Which has always been the case, ever since the CPI was created. Some goods are produced domestically, others are not. That does not equate to "capturing foreign labor markets".
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Yes, some goods are produced domestically, others are not. So, the price paid for the consumer basket is dependent on both domestic and foreign labor markets. If the United States shirt sewing union (hypothetical group, I don't know if there is one) went on a nation-wide strike, would the price of the shirt in the consumer basket go up? Probably not, because that shirt came from China. However, if the Chinese labor fluctuated, the cost
would change. The CPI would respond to the foreign labor market. If the car in the CPI is a Toyota Camry, a price increase by Ford would not effect that particular parameter. I wouldn't expect a change in the American labor market to significantly affect the price of an imported car. However, I would expect it to impact Ford. Unfortunately, the CPI might not give me information about that impact.
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Originally Posted by Sauron
The CPI is a measure of the cost of goods and services for a group of people, within a defined geographic area. Whether those goods and services are produced locally, or internationally, is irrelevant to what the CPI is designed to measure.
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Agreed. That's why I think it is too broad a measure to conclude that increases in labor costs don't lead to inflation in the sectors that are affected by the higher cost.