[DuncanWaring]

Perhaps because labor is only part of the cost equation.

The article took that into account; it said, in a roundabout way, that a 60% increase in labor costs would increase overall costs by 15%.

[Svartalfiar]

Perhaps because labor is only part of the cost equation.

The article took that into account; it said, in a roundabout way, that a 60% increase in labor costs would increase overall costs by 15%.

Correct, but what it did not mention (in the excerpt) was that other costs go up as well. Anything the restaurant purchases from other minimum-wage or union companies is going to go up by similar amounts. So that 60% -> 15% association turns into something like 60% -> 30%. And when your margins are less than 5%, the only other way to still make profit is to raise prices. (When's the last time you saw Arby's 5 for 5 deal? Or the smaller size/fewer options on Wendy's or Mickey D's dollar menus?)

So what happens then is fewer people make purchases. So that 15% higher labor cost results in 30% higher labor/product costs. Then you raise prices by 30%, and now your sales drop by 15%. And you have to raise prices by another 10%. Hey, there's that magic 40%!

If you read the original article, Chart 2 gives a good graphical representation of this.