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In a lot of businesses with stronger profit margins, labor costs can go up with no downstream effects. In a brutally competitive industry such as restaurants,

In a lot of businesses with stronger profit margins, labor costs can go up with no downstream effects. In a brutally competitive industry such as restaurants, where profit margins of 6% are considered extremely healthy, there has to be some sort of downstream effect to keep the business viable. Most likely they'll all just raise prices, but something has to happen for these businesses to have any chance at surviving the next recession. So you're right that minimum wage labor is inelastic for many businesses, but in restaurants a small change in costs can make a large number of businesses no longer viable.

pytester 7y ago
>In a brutally competitive industry such as restaurants, where profit margins of 6% are considered extremely healthy, there has to be some sort of downstream effect to keep the business viable. Most likely they'll all just raise prices Non chain restaurant industry is brutally competitive, yes. Burger King/McDonalds not so much. In non-chain restaurant industry the costs are typically either pushed on to diner (in the form of higher prices) or the rentier (in the form of lower rent). The one quirk of the non-chain restaurant industry is that if there is a cost push in the form of higher minimum wage or higher rent it often leads to bankruptcy and a replacement of the business with a different cost profile rather than a smoother transition to higher prices. This is why they fight so hard against unionization and minimum wage hikes.