If the minimum wage increases were as huge and as sudden as your example suggests, then I suppose you could confidently predict something dramatic would happen. But your example is very much exaggerated, and so is your conclusion.
Take Seattle's law. It is both more complicated and more subtle than your example. Since we are talking about restaurant workers here, this article is good reading:
Seattle's $15 Minimum Wage Law, Explained - Eater
In 2014, the biggest change will be from $9.50 to $11.00 (non tipped workers), the smallest will be from $9.50 to $10.00 (tipped workers and those with employer health care). Those are either 15% or 5% increases.
Typical restaurant labor cost is 30%, at least that is what successful restaurants target. That varies by type of restaurant, but let's keep it simple. So, say sales is $100. Labor $30, food $30, that is $60 in "prime costs". Leaves $40 for occupancy, g&a, marketing, etc, and pretax profit.
https://www.whitehutchinson.com/leisure/articles/primetime.shtml
So if sales is $100 and labor cost goes from $30 to $31.50 (+5%) or $34.50 (+15%), to keep "sales - prime cost" at $40, sales needs to rise to $101.50 or to $104.50, that is 1.5% or 4.5%. Again, this depends on whether the employees are tipped, non tipped, with healthcare, without.
So a logical thing a restaurant might do is increase menu prices by 1.5% or 4.5%. Some will convert employees from tipped to non tipped, and raise prices more but eliminate customer tips. There will be a variety of strategies.
Which will work and which won't?. Will certain types of restaurants do better than others?. Will a restaurant operator have to be smarter, hire better workers, change the way they do business?
Don't know.
In the coming years, we'll be able to track net new openings of restaurants in Seattle, and probably number of food service workers. Some people are already tracking new restaurant openings and permits, but to be complete you'd want to track closings too.
Seattle Restaurant Data Demolishes Conservative Argument Against $15 Minimum Wage | ThinkProgress
My point is, your example of a sudden 60% increase in labor cost is not close to the reality of what will happen to Seattle restaurants, so your logic starts from a false premise.
Yes, I realize minimum wage will gradually step higher over the coming decade under the Seattle law. So will all prices, thanks to inflation. I figure that the people who invest in starting restaurants are taking that into account, in deciding whether to start new ones in that city. So far, they seem to think the numbers still pencil out.
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I can certainly see how things might play out as you say: minimum wage goes up, crappy unproductive workers get paid more for being crappy and unproductive, more businesses close down than open up.
This makes sense
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I can also see how it could play differently: minimum wage goes up, those higher wages get spent, some businesses benefit, the businesses paying minimum wage raise prices by a small percentage, it turns out that demand is inelastic, profit margins stay the same, worker turnover declines.
This ignores the fact that labor is generally the single biggest expense of a small business, along with a lot of other things.
You can say you want to have a rational discussion, but you have to look at it rationally to do so.
Economics is a fairly complicated discipline, but there are a lot of things about it that are not. Say labor is half your expenses, or 50% of the total. If that half goes up by 60%, your total expenses go up 30%. How could your overhead rise by 30%, and you only raise your prices a few percent and stay in business? A lot of businesses run at 50% overhead, or half the money they get goes to keeping the business going. If you are going to give most of the money you otherwise would keep to your employees because of a change in the law, you don't think it would be more likely for you to shut it down?
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