Two years ago, I did a post in which I discussed the choices facing a fast food restaurant owner confronting a new $15 minimum wage. He could: cut staff and hope his customers didn’t object to a lower level of service; raise prices; replace some staff members with machines; or accept lower profits. The pandemic and the Great Resignation have put him in exactly the position I hypothesized. How is he responding in the living laboratory?
As I predicted, by selecting several of the options. In the short run, he is cutting staff and raising prices. In the longer run, investments in labor-saving technology are skyrocketing. The one thing he is not doing is living with lower profits. Hence, the performance of the markets, even in a pandemic with a labor shortage.