Mr Khan said:
Not really. I mean, there's a certain level minimum wage where you would start to price work out of the market, but businesses only hire the labor they need to get the job done in good times or in bad, especially businesses hiring minimum wage in the first placce (the low-end service industries). Labor costs going up by 20% is not going to slow business by 20%, and in most restaurants and stores you're already running as bare-bones as you can without severely impacting customer satisfaction (my gas station could cut to one cashier at a time, but the lines would stretch around the store at times). Whether you're paying $5 an hour or $15 an hour doesn't affect the number of customers you get, at least not directly, so in the $5 an hour scenario they won't have on cashier standing idle because there isn't enough business, they'd send him home for the day whatever they were paying him. Conversely in the latter scenario (though there's a harder cap on it as you slide up the scale), if you *need* two cashiers to keep things running at an acceptable pace, you're going to pay two cashiers, whether that's $40 for a day's work or $120 for a day's work. And this, of course, ignores the fact that if the other cashiers are also making $120 instead of $40, they're going to spend that $80, and probably spend it right away (because the marginal propensity to consume for the poor is very high), so that money is going to go to you, even if you have to raise prices a little to compensate. |
It depends on the elasticity. If the labor supply is very elastic then those unskilled workers are replaceable with skilled ones who are worth the greater cost. If the labor supply is inelastic then your point stands. Ultimately, most real world situations show more elastic labor supply than otherwise. I wasn't arguing productivity will decrease, I was arguing that the minimum wage creates a barrier of entry into the job market for unskilled workers, who would otherwise use the job to gain skills and training, so that they can move up the ladder. Of course in certain markets there is a deadweight loss, but not in all. Also we must also consider automated cashiers and computers, which have no cost other than their manufacturing cost.
This is why we see more college graduates (those who have degrees with no demand, otherwise) and fewer teenagers working in the fast food industry.
