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Those numbers don't contain enough information to calculate a price elasticity. Even sales numbers don't contain enough information to calculate a price elastic

Those numbers don't contain enough information to calculate a price elasticity. Even sales numbers don't contain enough information to calculate a price elasticity, because you don't just need to know the change in sales after a price change, you need to know what percentage of that change was due to the price change instead of other changing factors - slowing of the pandemic, changing menu, advertising, growth in customer base that was happening anyway, etc. Those numbers are hard to get. But people who have done studies have estimated that in the restaurant industry, the number is close to 1. I mean think about what you are saying if you are claiming that the price elasticity is 0. You are saying that even before the wage increases, they could have raised prices by 4% and returned that money to their investors as pure profit, in an industry where profit margins are single digit and not usually high single digit. Not a chance.

sudosysgen 5y ago
That's completely besides the point. No, that is not all what I meant, and at this point I don't really understand how I can make it clearer. The 4% increase in prices leading to a 15% minimum wage is a FACTUAL DATAPOINT. It is EMPIRICAL REALITY. No theorem, model, or anything, can change that, because that's what ACTUALLY HAPPENED. It's not theoretical. After all was said and done, prices were increased by 4%, and wages were increased to 15$/hour. It's completely useless to talk about elasticity, and try to estimate it, in this context. You are trying to apply a model, to reality, and arguing that the model is correct, but reality is not correct.
- rufus_foreman 5y ago
  Here's the conversation I responded to: Article: The money’s gotta come from somewhere. People seem to forget that part. Response: 4% price increase to get to a living wage. Not $15 sandwiches, just $7.28 instead of $7. Pay your employees. It's that simple. The clear implication of the response, clear to me at least, is that where the money comes from to raise the employees' wages is revenue due to the price increase. Let me know if you understand it differently. That only works if the price elasticity is 0. They sell the same amount of food at higher prices and use the money to pay higher wages. If price elasticity is 1, they raise prices by 4%, they sell 4% less food, and the money for wages needs to come from somewhere else. Could be less profit for the restaurant, could be hiring fewer workers or giving them fewer hours, could be smaller portions or cheaper ingredients, could be the money comes from the bondholders who don't get repaid when the company goes bankrupt. If price elasticity is infinite, they raise prices and demand goes to 0 and they eventually go bankrupt. No restaurant would intentionally be operating with prices set in a range where the price elasticity is 0. They would raise prices until it wasn't in that range. The money for wages can't (only) come from increased revenue from a price increase. That was my point.

sudosysgen 5y ago

That's completely besides the point. No, that is not all what I meant, and at this point I don't really understand how I can make it clearer. The 4% increase in prices leading to a 15% minimum wage is a FACTUAL DATAPOINT. It is EMPIRICAL REALITY. No theorem, model, or anything, can change that, because that's what ACTUALLY HAPPENED. It's not theoretical. After all was said and done, prices were increased by 4%, and wages were increased to 15$/hour. It's completely useless to talk about elasticity, and try to estimate it, in this context. You are trying to apply a model, to reality, and arguing that the model is correct, but reality is not correct.

rufus_foreman 5y ago
Here's the conversation I responded to: Article: The money’s gotta come from somewhere. People seem to forget that part. Response: 4% price increase to get to a living wage. Not $15 sandwiches, just $7.28 instead of $7. Pay your employees. It's that simple. The clear implication of the response, clear to me at least, is that where the money comes from to raise the employees' wages is revenue due to the price increase. Let me know if you understand it differently. That only works if the price elasticity is 0. They sell the same amount of food at higher prices and use the money to pay higher wages. If price elasticity is 1, they raise prices by 4%, they sell 4% less food, and the money for wages needs to come from somewhere else. Could be less profit for the restaurant, could be hiring fewer workers or giving them fewer hours, could be smaller portions or cheaper ingredients, could be the money comes from the bondholders who don't get repaid when the company goes bankrupt. If price elasticity is infinite, they raise prices and demand goes to 0 and they eventually go bankrupt. No restaurant would intentionally be operating with prices set in a range where the price elasticity is 0. They would raise prices until it wasn't in that range. The money for wages can't (only) come from increased revenue from a price increase. That was my point.