An increase in the minimum wage raises the costs of fast foods and other goods produced with large inputs of unskilled labor. Producers adjust both by substituting capital inputs and/or high-skilled labor for minimum-wage workers and, because the substitutes are more costly (otherwise the substitutions would have been made already), by raising prices. The higher prices reduce the producers' output and thus their demand for labor. The adjustments to the hike in the minimum wage are inefficient because they are motivated not by a higher real cost of low-skilled labor but by a government-mandated increase in the price of that labor. That increase has the same misallocative effect as monopoly pricing.Surely, just like the minimum wage, other regulations on labour also have a greater impact on certain industries relative to others. I started thinking about this when another commentator asked why the U.S. doesn’t adopt a 35-hour work week. Here’s most of what I posted in response on Café Hayek:
….regulations on hours worked can be just as painful to certain sectors as minimum wage requirements. First, it does seem odd that 40 hours is considered to be a "natural" and permanent level (although, I think the French have already proven what a failure the 35-hour week can be). Second, I can’t understand how an obligatory set of hours can be optimal for ALL industry sectors. Perhaps regulations on hours of work distorts the ability of each sector to find its own "natural" level through heuristic means, or whatever, thus hampering productivity and efficiency in certain sectors. I’ll explain.
Any strict regulation on hours worked, be it 40 hours or whatever, may not work for all sectors for at least two reasons: i) some sectors are productive in spurts (I’m reminded of a post on freexchange where a reader notes that "anyone building a house or undertaking a project that requires a number of diversified tasks comes up against the brick wall of inefficiency" when faced with regulations on hours worked); and ii) not all sectors have the same firm-size make-up. An IMF report shows that moving from a 40-hour to a 35-hour work week encouraged French workers in "large firms to take second jobs or to move to small firms where the 35-hour work week is not obligatory." In other words, while a 35-hour work week might be optimal for sectors comprised of small firms, it is likely not optimal for larger corporations, the backbone of our economy.
I just wanted to take note of the subject of work hour regulations here because I thought it might be interesting to sometime explore its impact on various industry sectors. Perhaps some industries have more to gain from a barrier-free labour market than others. Further, perhaps the existence of certain regulations on labour distorts the "natural" sectoral make-up of a nation's economy.
I agree that it should be up to the company how many hours one should work - up to some maximum allowed under law under at-will labor. I mean, as long as you know the terms before you agree to the work, companies should have a lot of flexibility.