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nshepperd comments on The Robots, AI, and Unemployment Anti-FAQ - Less Wrong
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Actually neither, according to standard economic theory. According to standard supply/demand ideas price is picked in order to maximized profit. This maximization of profit is the same point regardless of labor costs (or taxes or whatever). Similarly, a well run business has enough workers to meet demand. The first order effect to a minimum wage increase is a decrease in profit. Adjusting the price up will just result in even less profit.
The mechanism that drives up unemployment is that marginal businesses that WERE making a profit cannot make a profit under the new minimum wage law. This drives them out of business and reduces employment. So prices don't go up, but marginal businesses fail.
The idea that price is related to cost is one of the first thing disabused by standard economic theory. Optimal price is market driven.
Isn't this oversimplifying things? If McDonalds was previously making a 5% profit on its minimum wage workers, and the minimum wage increases by more than 5%, obviously they have to raise their price so they at least make a profit rather than a loss on each unit (of whatever they're selling). But, raising the price reduces demand so they'll probably have to reduce their production rate (number of units) by firing a few workers as well. Which I guess is in a way equivalent to marginal businesses failing.