[Alberta's Child]

For one thing, it might actually cost less to have 50 employees earning $5/hour than 10 employees earning $20/hour when you take into account the added costs of payroll taxes, Obamacare, etc. for the "legitimate" employees. But that's not relevant to a discussion about inflationary/deflationary trends, since the payroll taxes and added costs would still be included in our GDP calculations anyway.

The productivity point is absolutely relevant, though -- and I'm envisioning a scenario where the 50 employees are more productive than the 10 employees. If this sounds outlandish, understand that this is basically what has happened in the U.S. auto industry over the last 30+ years. The Big Three pay their workers a lot more under their UAW contracts, so they keep fewer of them on the payroll. Foreign competitors that have opened plants all over the South, on the other hand, pay their workers less but hire a lot more of them. For the most part, they've made better cars over the yeas, too.

[Paul R.]

Ah, but are the 50 employees more productive than if the 10 employee employer adds 2 or 3 more $20/hr. employees running highly automated equipment that requires skilled operators? To make the comparison one must set equal either the output of the labor, or the cost of the labor.

As for the car manufacturers, that is a MUCH more complex situation. For one thing, the management / worker relationship is typically much different in those foreign competitors’ plants. But I agree about the better cars!