EclectEcon

With all the on-going discussion in the blogosphere concerning the effects of minimum wage legislation (e.g. see this at Cafe Hayek, this at Market Power, and this by Greg Mankiw; and see this earlier piece by Craig Newmark), I'd like to add these observations.

Some years ago, a professor in socionomology argued that raising minimum wages wouldn't cause job losses in the fast food industry because you'd still need workers (graduates from his department, probably) to flip burgers.

There are two problems with this so-called analysis.

1. It assumes a fixed-coefficents production function [you need a fixed proportion of labour and capital, no matter how much you produce] in the fast-food industry. But as one who has happily worked and consumed in the fast-food industry for nearly half a century, I can assure you that production techniques are changing all the time. And much of the technological change that is implemented seems to allow the substitution of capital for labour.
2. The second problem is both larger and more subtle. As minimum wages increase in the fast-food industry, prices rise too. And as the prices of fast food increase, people start buying more microwavable food in grocery stores, storing it at home in freezers, and preparing it themselves. The substitution of capital for labour takes place in the factories that produce the food, in the grocery stores, and people's homes, not in the fast-food restaurants themselves, but it is every bit as important a phenomenon.

For a good but lengthy summary of the economics of minimum wages, see this.