Cities or states are enacting higher minimum wage rates. Businesses should consider one or more of these four strategies: reduce labor usage, substitute equipment for labor, move to a lower-cost area, raise prices. These categories are not mutually exclusive.

A store near my office hires people to stand on the sidewalk holding signs that say “Mattress Sale!” There are sometimes three people standing on different corners working for the same store. At some wage rate, it no longer makes sense to have three people holding signs. In fact, at $15 an hour all of these jobs may go away. There's sometimes a mental model held by politicians that the number of workers that a company needs is fixed. That's not at all true, as evidenced by the sign holders. There's a lot of elasticity in the demand for labor.

Even at today's wage rates there is substantial substitution of technology for labor. In Oregon, where I live, the state minimum wage is $9.25, higher than the national minimum. Downtown parking garages no longer have human attendants. Instead, automated kiosks take payments. Similar examples abound across various businesses. This substitution of equipment for human labor takes time, but inevitably occurs. (See papers by Isaac Sorkin and Aaronson, French and Sorkin. In the latter paper, evidence shows that higher minimum wages push independent restaurants out of business, with more-automated chain restaurants filling the gap.)

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The third option for a company facing a high local minimum wage is to move to a lower-wage location. Los Angeles is the home to many apparel companies that have been paying entry-level wage rates less than the new $15 minimum wage. Adjacent cities with the lower state-wide minimum wage will attract these companies. This is the general case for manufacturing companies that pay low wages for at least some of their workers.

Finally, businesses that can't easily move or automate will raise prices. This is easier than it may seem, given that competing businesses are facing the same challenge. Downtown restaurants, dry cleaners, and convenience stores can't move, at least not to serve the same clientele. With higher costs they raise prices. This may be in the form of higher list prices or lower quality service at the old prices.