[ManM]

Originally Posted by Sauron

Or perhaps you can tell us what you think would happen.

Then I can list the reasons why you're wrong.

Ok.
An increase in minimum wage will increase the cost of unskilled American labor. So, what is a business to do?

1) Employ fewer unskilled people. Increasing the cost of unskilled labor makes the thought of reducing reliance on that labor more enticing. One form of this entails transferring the employment from unskilled workers to a smaller set of skilled workers. The extreme example is automation, where unskilled labor is replaced by a much smaller set of engineers and technicians.

2) Increase the cost of your goods/services. This is what the service industry does. A service provider needs to meet demand, or else that demand might go to a competing service provider that has the appropriate manpower. They often don't have the option of #1, and must keep their labor pool intact in order to service their demand. In order to maintain their profit, they have to compensate for the increase in costs, and a common way to do that is to increase the cost for their goods/services.

3) Decrease profits. If your business is operating with a decent profit margin, this option may be available. This is good for the workers (increased wages) and customers (constant cost), but not the shareholders (reduced dividends). Given that the board of directors tends to be accountable to the shareholders, such a move is typically unpopular among the upper management.

4) Redistribute wages. Compensate for the increased cost of unskilled labor by devaluing skilled labor. This makes it harder for a business to compete for the skilled labor it needs.

5) Outsource. As the price of American unskilled labor goes up, its value on the global market goes down. This isn't much of a minimum wage problem any more, as the industries that rely on minimum wage labor for production have largely already left for greener pastures, such as China.

So far, this should not be controversial. The money for a minimum wage increase has to come from somewhere, so it is just a matter of figuring out if it is coming from unskilled workers (unemployment), customers (inflation), shareholders (decreased profits), or skilled workers (redistribution).

Now, for the controversy. As the value of American unskilled labor decreases in the global market, outsourcing will become more common. However, the service industry can't exactly be outsourced. A person in India can't fill your order for fries, ring up your new jeans, or clean out the trash in your hotel room. However, a person in India can certainly sew a shirt, glue a rubber sole onto a shoe, or answer a phone. This will have the effect of channeling American unskilled labor into the service industry. As such, I don't think a minimum wage increase will lead to a generally increased unemployment. The service industry needs to maintain its workforce. However, I do think it will lead to an increase in the cost of service. Shareholders aren't going to take the hit, and businesses are still going to need to compete for skilled workers. That leaves the customers to pay for the increases.

Which economic demographic tends to utilize services operated by unskilled minimum wage labor the most? Low income people can't afford to heavily use the services offered by employers of unskilled labor, and I suspect high income people use more premium services (eg eating at Applebees rather than McDonalds, or staying at the Hilton rather than the Econo Lodge). That leaves the middle class to pay for the lion's share of the minimum wage increase.

So, feel free to list the reasons why I'm wrong.