A few days ago Garett Jones came to my office door and asked “what do we really know about labor supply?” I said we might as well extend the query to labor demand. In any case, here was part of my answer, paraphrased of course:
I’ve been much influenced by having kept a dining guide blog/website for almost thirty years, and seeing so many places come and go. On one hand, I see the stickiness of plans. A restaurant opens up, and the proprietor has the intent to be a certain thing. They’re not going to take the pupusas off the menu, just because the price of corn has gone up. Similarly, increases in the minimum wage might not much alter the hiring plans of the restaurant. The very act of starting a business selects, to some extent, for people who stick to their plans. The dishes still need to be washed, and many owners are not at the margins of considering serious automation.
That said, sooner or later these restaurants pass from the scene. And when the El Salvadoran place closes, there is a real competition across competing food visions. Will it be pupusas, roast chicken, or kebab? Once again, relative prices will exert their influence, on both the supply and demand sides of the market. In fact, pupusa places are slightly in retreat, as they cannot always bid for their higher area rents — it is hard to sell a pupusa for more than a few dollars and at the same time the requisite labor is harder not easier to come by and demand seems stagnant at best.
Similarly, if the minimum wage is high, the new restaurant, if indeed it is even a restaurant, will economize on the number of laborers required to make the food. The plan for a true Bengali sweets shop will not get off the ground. You might see storage space or a less labor intensive means of food preparation.
We thus come to a truth that is both happy and sad: death and turnover are how relative prices imprint their impact on the world.
And that, to an economist, is the meaning of death.
Originally posted on Marginal Revolution – click to see comments and suggestions.
