[PEN-L:1764] Re: Minimum wages in real terms

[blairs@xxxxxxxxxxx (Blair Sandler)]

At 3:46 PM 12/5/95, Patrick L. Mason wrote:

>Let me respond to Zaremka's question on changes in the minimum wage with the
>following example.
>
>r = S/(C + V) = (p - k)*Q/K = (p - k)*(Q/L)/(K/L)
>
>p = unit selling price
>k = unit cost (wages, circulating capital, depreciation)
>Q = output
>L = size of productive labor force
>K = fixed capital investment


Perhaps I'm missing something here, but as I read your equation above,
you've got "fixed capital investment" equal to "C+V." Now I don't get how
you can say this. Wouldn't this change the analysis that followed? Because
if K = total capital investment (and not fixed k only), then K/L is nothing
like the usual meaning of "capital/labor ratio. I know folks (Jim, Doug,
and Patrick) have been discussing this point, among others, but I don't
even see why any analysis based on this "misdefinition" would be helpful.
Can someone explain this to me please?

Thanks.

Blair