3 ms·

I’m not an economist, but won’t prices have to rise to offset the increased labor costs?

• jfengel 6y ago
  Not necessarily. It depends on the elasticity of demand, the competition, even the way numbers round. If a $7.50 worker worker makes 100 Big Macs an hour, doubling their wage means the cost goes by by 7.5 cents. The price of a Big Mac is $3.99, not because it cost exactly 399 cents to produce a Big Mac, but because that's how the company prices things. They're not going to raise the price to $4.065. Most likely, it means that instead of making $.50 per Big Mac, they'll make $.425. I'm oversimplifying, but that's the point. It's not as simple as "the cost of one input doubled therefore the price of everything doubles". The ultimate goal of a minimum wage is to shuffle money from the "profit" column to the "labor" column. Even in a simplistic model, you'll get some small price increase and some shuffling of existing profits. Actual data is mixed, but certainly doesn't show a straightforward "we raised minimum wages but prices just rose to match it" scenario. Inflation due to minimum wage increases is always just lost in the noise of other changes in prices.