When you increase the minimum wage, a business is forced to do one, or both, of the following things in order to continue earning a profit.
The first thing they can do is decrease the amount of labor they purchase and squeeze more efficiency out of said labor. Oftentimes, this is accomplished by automating work. This is why most fast food joints "allow" you to pour your own soda and bus your own table: They are getting you to perform the labor rather than paying someone to do the same. Similarly, this is why some burger joints are experimenting with machines that literally make the burgers automatically. Fewer people in the kitchen means less labor purchased. This is why the CBO projected that increasing the minimum wage to $10.10 could cost half-a-million jobs.
After all the excess labor has been trimmed/replaced by mechanization, there's a second thing that businesses can do: increase their prices. This is easier to do in some businesses than other. Starbucks adds 20 cents to everyone's order, et voila. (Fast food outlets are in a slightly tighter spot than gourmet coffee shops; the whole reason to go to McDonald's is because it's quick and cheap.) Some businesses don't really have that option, however. Consider, for instance, your friendly neighborhood bookstore.
Now, book stores are a dying breed in general thanks to stiff competition (read: low prices) from Amazon, the digitization of books, and the revitalization of urban centers, which has caused rents to climb in recent years. They're operating on pretty tight budgets as it is. So what happens to a book store when, on top of genuine market pressures, the government foists a costly—and entirely artificial—mandate on it?
In November, San Francisco voters overwhelmingly passed a measure that will increase the minimum wage within the city to $15 per hour by 2018. Although all of us at Borderlands support the concept of a living wage in principal and we believe that it's possible that the new law will be good for San Francisco — Borderlands Books as it exists is not a financially viable business if subject to that minimum wage. Consequently we will be closing our doors no later than March 31st. …
The change in minimum wage will mean our payroll will increase roughly 39%. That increase will in turn bring up our total operating expenses by 18%. To make up for that expense, we would need to increase our sales by a minimum of 20%. We do not believe that is a realistic possibility for a bookstore in San Francisco at this time.
The other obvious alternative to increasing sales would be to decrease expenses. The only way to accomplish the amount of savings needed would be to reduce our staff to: the current management (Alan Beatts and Jude Feldman), and one other part-time employee. Alan would need to take over most of Jude's administrative responsibilities and Jude would work the counter five to six days per week. Taking all those steps would allow management to increase their work hours by 50-75% while continuing to make roughly the same modest amount that they make now (by way of example, Alan's salary was $28,000 last year). That's not an option for obvious reasons and for at least one less obvious one — at the planned minimum wage in 2018, either of them would earn more than their current salary working only 40 hours per week at a much less demanding job that paid minimum wage.
(Hat tip to Mark Perry for that link.) An attempt to artificially increase the pay of people whose labor is not worth that level of artificial pay has led to the total loss of several jobs and the shuttering of yet another bookstore. Now, maybe it's all worth it in the name of Almighty Progress. But it seems to me that we might be better off letting businesses set their own wage floors—or, at the very least, stop crippling them with ever-increasing burdens.