Over at Forbes, Tim Worstall weighs in on the impact of a $15 wage on the price of a Big Mac (links are off today). His conclusion is that production costs do not determine price in a competitive market. No argument. So in his example, McDonalds might reduce labor and increase capital in the production of tasty delights. He doesn’t mention it but they also might close down outlets that become unprofitable and do not have the volume to be mechanized.
It is not mentioned that labor is also a competitive market. Besides the reduction in the total number of jobs caused by a more capital intensive process, there is the switch in the folks doing the jobs. Minimum wage folks and folks earning between the minimum wage and $15 per hour are likely to have different skills. So the higher skilled workers will replace the lower skilled workers. We don’t know exactly how much the minimum wage workers as a group will be hurt by the $15 minimum wage. Some will prosper and others will be come unemployable.
Aren’t you glad that we have markets that solve all of these problems! When we regulate the market we can’t know the exact outcomes. They shouldn’t be called unintended consequences as they are obvious to everyone. What we don’t know is the extent of the consequences.