In recent years, research has found not only that past minimum wage increases had no measurable negative effects, but they often produced positive effects on the functioning of the low-wage labor market. Higher minimum wages tended to reduce turnover and increase job tenure among low-wage workers – leading to productivity improvements and lower turnover costs at affected businesses. Most importantly, research has consistently shown that raising the minimum wage boosts the pay of low-wage workers who typically come from low- and moderate-income households. Because these households typically spend a larger portion of their income than wealthier households, the rising wage floor can provide a modest boost to consumer spending, generating new business activity, particularly in lower-income areas where consumer demand is more depressed. And this is true even if some firms have to enact small price increases as a result of the higher minimum wage. Pay raises for low-wage workers resulting from higher minimum wages are vastly larger than any resulting price increases – typically by a factor of more than 10 to 1.7 This is because labor costs are only one piece of businesses’ overall operating costs, and as previously noted, raising pay simultaneously generates savings from higher productivity and lower turnover.
Critics say artificially raising the minimum wage would ultimately destroy the jobs activists are trying to improve. To them, it's a simple case of economics. If the cost of hiring an employee is too high, the employer just won't hire the employee. Instead, the employer will find a way around it or close up shop.
The McDonald’s earnings report on Tuesday gave a hint at how the fast-food chain really plans to respond to its wage and profit pressure—automate. As many contributors to these pages have warned, forcing businesses to pay people out of proportion to the profits they generate will provide those businesses with a greater incentive to replace employees with machines.