Originally Posted by
Ethan
IMO, this is *less* of a factor than the tendency to fire workers. Higher wages will cause more incentive for greater efficiency, pushing up productivity but dropping jobs.
Some of the cost will definitely be passed on, but not all of it. For many items, not even most of it, since items costs are a fairly major cost as well. Imagining doubling minimum wage (for an extreme) - this is not going to double the cost of your pizza. The milk for the cheese at the farm goes up to pay the farmer more (in theory, over time), but the cows don't cost too much more. Nor the barn. The truck to ship the milk to the cheese factory will raise it's price to pay the driver more, but the truck won't cost much more, so that only goes up a bit too. Same at the cheese factory - the workers cost more, but the equipment and electricity stay fairly close to their current costs. Then more trucking, same deal.
Finally, your pizza is being made. The cook is getting paid double, but the rent is close to the same, the oven is close to the same, and the milk didn't go up anywhere near 2x, even though it definitely goes up. So even if you can't gain efficient anywhere, only some of the costs go up significantly, and so the pizza definitely starts to cost more, but not a huge amount more.
I'm sure there are predictions/studies about how much of a min wage gain is real wage gains, and how much is lost to inflation. I frankly have no good idea how much, precisely, though if forced to guess I'd hazard between 25-50% of the wage gains get eaten by inflation effects. I am sure it isn't 100% though - raising the nominal minimum wage will produce purchasing power gains for those making the minimum wage.