Final answer:
An increase in the minimum wage in the restaurant industry is likely to result in a higher ratio of chain restaurants to mom-and-pop restaurants, as larger chains have more resources to absorb and adapt to wage increases.
Step-by-step explanation:
If the minimum wage in the restaurant industry increases over time, we would eventually expect the ratio of highly capitalized chain restaurants to mom-and-pop restaurants to increase. This outcome is due to the higher capitalization and financial resilience chain restaurants typically have over smaller, independent restaurants.
When minimum wage laws push wages upward, small businesses like mom-and-pop restaurants might struggle to adjust due to tighter budget constraints. On the other hand, chain restaurants can better absorb the increased labor costs due to larger capital reserves, access to financial instruments, and economies of scale. These factors allow them to potentially expand or at least maintain their presence in the market compared to smaller establishments that might be forced to reduce staff, raise prices, or even close down, altering the ratio in favor of larger chain restaurants.
This dynamic is underpinned by the nature of wage stickiness in the service sector, especially where wages are kept at minimum levels by law but don't increase correspondingly with inflation, putting pressure on real wages. Moreover, as wages rise, some chain restaurants may invest in labor-saving technologies to maintain profitability, which is often less feasible for smaller entities. Therefore, an increase in minimum wage without corresponding productivity gains may lead to a reduction in the number of small, family-owned diners relative to larger chains.