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Consider an industry like fast food, in which 1. product demand is quite inelastic (small price...

Consider an industry like fast food, in which
1. product demand is quite inelastic (small price changes in burgers or tacos hardly affect the quantity demanded)
2. it is difficult to substitute capital for labor (cooking and cleaning robots are still hard to come by)
In an industry like this, do you expect the employment effects of an increase in the minimum wage to be relatively large or small? Explain.

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Answer #1

The effect of minimum wage increase on employment would be relatively small.

This is because of two things:

1. It is difficult to substitute capital for labor. So, we cannot use capital instead of robots to do the work, if we fire robots in case of high wage requirement

2. Demand for good is inelastic. So, we can transfer the burden of wage rise on to the buyers in the form of higher price and still be worry free because demand for the good won't fall (since it has Inelastic demand)

Thus, employment effect of increase in minimum wage will be relatively small (or Inelastic in nature).

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