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The minimum wage and restaurant prices

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  • Daniel Aaronson
  • Eric French
  • James M. MacDonald

Abstract

Using both store-level and aggregated price data from the food away from home component of the Consumer Price Index survey, we show that restaurant prices rise in response to an increase in the minimum wage. These results hold up when using several different sources of variation in the data. We interpret these findings within a model of employment determination. The model implies that minimum wage hikes cause employment to fall and prices to rise if labor markets are competitive but potentially cause employment to rise and prices to fall if labor markets are monopsonistic. Therefore, our empirical results appear to provide evidence against the hypothesis that monopsony power is important for understanding the small observed employment responses to minimum wage changes.

Suggested Citation

  • Daniel Aaronson & Eric French & James M. MacDonald, 2004. "The minimum wage and restaurant prices," Working Paper Series WP-04-21, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:wp-04-21
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    Cited by:

    1. F. Angel-Urdinola, Diego, 2008. "Can the Introduction of a Minimum Wage in FYR Macedonia Decrease the Gender Wage Gap?," Policy Research Working Paper Series 4795, The World Bank.
    2. James M. MacDonald & Daniel Aaronson, 2006. "How Firms Construct Price Changes: Evidence from Restaurant Responses to Increased Minimum Wages," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 292-307.
    3. repec:ilo:ilowps:462988 is not listed on IDEAS

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    Keywords

    Labor market; Wages; Wages - Restaurants;
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