Market Power

Musings by an academic economist on the power of markets and the power over markets.

Monday, January 31, 2005

Subsitution Between Labor at McDonalds

The Eclectic Econoclast has this post about a McDonalds in Oregon outsourcing its order to Grand Forks, ND in part to take advantage of the lower minimum wage in North Dakota. A McDonalds in Cape Girardeau, Missouri does it too, but doesn't do it to take advantage of a lower minimum wage, but did it to lower costs:

The man who owns the Cape Girardeau restaurant, Shannon Davis, has linked it and three other of his 12 McDonald's franchises to the Colorado call center, which is run by another McDonald's franchisee, Steven Bigari. And he did it for the same reasons that other business owners have embraced call centers: lower costs, greater speed and fewer mistakes.
This is what firms do - search for the lowest cost of production. If we force them to pay a resource an above-market price, this gives them an incentive to search and/or develop alternative resources. Sometimes it takes time, but it will happen.