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Minimum Wage and Sectoral Price Inflation

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  • Ahsan, Ishmam

Abstract

Albeit being a fiscal policy tool, any federal or regional minimum wage hikes during an inflationary economic environment can have strong policy implications for the Federal Reserve. This paper seeks to explain the relationship between minimum wage hikes and sectoral price dynamics in the United States for two sectors: (i) restaurant sector and (ii) technology sector. I examine the overall relationship between sectoral price inflation and binding minimum wage changes by using a panel data regression model. Estimates suggest that there exists a small, positive and statistically significant relationship between minimum wage hikes and price inflation in the restaurant sector. The share of minimum wage workers in the technology sector is considerably lower and I find a statistically insignificant relationship.

Suggested Citation

  • Ahsan, Ishmam, 2021. "Minimum Wage and Sectoral Price Inflation," MPRA Paper 117350, University Library of Munich, Germany, revised May 2023.
    • Handle: RePEc:pra:mprapa:117350
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    References listed on IDEAS

    as
    1. Jonathan Wadsworth, 2010. "Did the National Minimum Wage Affect UK Prices?," Fiscal Studies, Institute for Fiscal Studies, vol. 31(1), pages 81-120, March.
    2. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-793, September.
    3. Denis Fougère & Erwan Gautier & Hervé Le Bihan, 2010. "Restaurant Prices and the Minimum Wage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1199-1234, October.
    4. Emek Basker & Muhammad Taimur Khan, 2016. "Does the Minimum Wage Bite into Fast-Food Prices?," Journal of Labor Research, Springer, vol. 37(2), pages 129-148, June.
    5. Daniel Cooper & María José Luengo‐Prado & Jonathan A. Parker, 2020. "The Local Aggregate Effects of Minimum Wage Increases," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(1), pages 5-35, February.
    6. Daniel Aaronson & Eric French & James MacDonald, 2008. "The Minimum Wage, Restaurant Prices, and Labor Market Structure," Journal of Human Resources, University of Wisconsin Press, vol. 43(3), pages 688-720.
    7. Daniel Aaronson, 2001. "Price Pass-Through And The Minimum Wage," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 158-169, February.
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    9. 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.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Minimum wage; inflation; firm behavior;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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