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Menu Adjustment in Response to the Minimum Wage: A Return to the New Jersey-Pennsylvania Border

Author

Listed:
  • Papps, Kerry L.

    (University of Bradford)

  • Strain, Michael R.

    (American Enterprise Institute for Public Policy Research)

Abstract

This paper studies how output prices are affected by increases in the minimum wage. To the best of our knowledge, we provide the first examination of how the prices of an entire menu of items at a single business adjust in response to a minimum wage increase. Using data we gather form a fast-food chain, we find that a $1 minimum wage rise increased average prices by 7 cents, implying a pass-through elasticity of around 0.13. We also study how the price response across individual goods varies with the labor intensity in production of those goods. Consistent with a theoretical framework we describe, the prices of items that require more labor to produce increased by more due to the minimum wage increase. A $1 increase in the minimum wage raised the item price by an extra 0.3 cents for every additional preparation step. We also find that more price adjustment takes place at the store level than at the item level, and that it takes longer for prices to respond to a minimum wage increase than the existing literature suggests.

Suggested Citation

  • Papps, Kerry L. & Strain, Michael R., 2025. "Menu Adjustment in Response to the Minimum Wage: A Return to the New Jersey-Pennsylvania Border," IZA Discussion Papers 17594, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17594
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    More about this item

    Keywords

    minimum wages; prices; restaurants; menus;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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