@seawulf575 “Eventually all companies could be offering $5/hr and that would be what the wages were.”
Correct. There would be a race to the bottom.
”...This would drive the cost of everything down by necessity…”
Nope. Here’s where you go offtrack. This is only true if companies pass on those cost savings to their customers. Furthermore, the cost of labor is only a fraction of the total cost of a good or service, so if wages plummet by 50%, prices will not drop by an equivalent amount.
”...People making $5/hr could not afford all the prices of today’s world. So sales on everything would take a hit…”
True. Sales would plummet. which leads us to:
”...causing prices to come down to tempt people to buy.”
No. In some instances good and services are very inelastic and price changes won’t affect demand much, and likewise with other goods and services, they are elastic and will respond to price changes. The problem is in such a scenario, people who are laid off, ONLY buy the necessities. No amount of discounting will entice buyers. And the savings from cheaper labor doesn’t come close to making up the reductions in revenue you’re predicting.
What you end up with when you have a negative demand shock like that is LAYOFFS.