The switching effect is a poorly understood economic concept. When the price of one good rises relative to another good, people will tend to buy more of the good that is less expensive now. If apples and oranges were the same price, but apples became more expensive while the price of oranges remained the same, people would tend to reduce the amount of apples they buy and get more oranges instead. And it’s worth remembering that this effect comes from changes in relative prices, too – not just absolute prices.
If apples are normally $1 and oranges are $2, but the price of apples increases to $1.50 while oranges remain at $2, this may increase the number of oranges sold. Even though the price of oranges has not changed, and its price is still higher than the price of apples in absolute terms, relative the price between the two has changed. Previously, for the price of three oranges you could get six apples. Now, for the price of three oranges you can get only four apples. Different people will adjust in different ways according to their preference between the two, but overall we can expect to see a larger proportion of oranges being sold than ever before.
There is also an effect instead of a function. As the job is more expensive, employers will often find other substitutes for that job. One way they can do this is to replace workers with machines. This tends to happen over time itself – as technology improves and becomes less expensive, the relative value of using automation instead of hiring workers decreases, leading to an increase in automation. But artificially raising the price of labor lowers the price of automation, causing more workers to be replaced by automation.
Among the many things one can say about the state of California is that we never fail to provide opportunities to demonstrate economic performance. I previously wrote about how the $20 minimum wage for fast food workers was causing fewer people to eat at fast food joints and go to restaurants instead:
So why worship places More Expensive restaurants are seeing their traffic increase, while less expensive restaurants are still seeing their traffic decrease?
The answer is that although the price of food chains has not fallen completely, it has still fallen. relative goals compared to fast food. Fast food and fast food restaurants vary in price, quality, and convenience. But as fast food establishments are forced to raise their prices due to rising labor costs, the price gap between fast food outlets and restaurants has narrowed with no change in the other two ratios. Because of that, people realize how much it would cost them to get a basic combo at McDonalds and think “Well, if I’m going to have to pay this much just to get McDonalds, I might as well pay less. instead, he went to Chile.”
Recently, another change was made by the largest fast food chain in California – Chipotle. After the wage increases were enacted, Chipotle began replacing workers with machines, as detailed in this news release:
Chipotle introduced two robots which can take over the tasks normally performed by its employees.
The ‘autocado’ can peel, stone and slice an avocado for guacamole in 26 seconds. Meanwhile, a ‘digital makeline’ separates salads and dishes based on orders in the app.
The machines are part of the automation drive Chipotle management hopes to reduce the number of workers needed – reduce rising labor costs.
Therefore, it is not surprising that they are used first in two Mexican restaurants Californiathe company announced on Monday.
The author of that news article raises the issue of how much automation might cost:
It’s unclear how the production costs of using Chipotle’s new equipment compare to the human labor involved in making Chipotle’s menu items.
But that’s why it’s important to remember that it is relative rather than the total costs driving these changes. Even if the cost of a new machine is more expensive than human labor in absolute terms, the new minimum wage law still uses machines. less expensive compared to human activity than before. And that is all that needs to happen for the effect of change to take effect.
Apart from that, it should also be noted that many restaurants, fast food and so on, find a different place for the workers than the machines. They simply allow the customer to perform tasks that would normally hire employees to perform. At one of my favorite restaurants, they used to have someone take your order, but they’re gone. That person’s job consisted of customers saying what they wanted, and pressing certain buttons on a computer to place an order. Now, they have a self-service kiosk and have customers push those buttons themselves. When your food is ready, they don’t have servers come to bring the food to your table. They call your order number, and you take the food from the counter and bring it to the table yourself. And when you’re done, you don’t have to leave your dishes for a ride to the attendant. You drive to your own tables – they have trays set aside for you to put your dirty dishes on. Restaurants are increasingly using customer service personnel to replace cashiers, servers, and bussers.
I’ve said it before and I’ll say it again – for all its simplification, the world would benefit from a greater use of Econ 101 than we have today.
Source link