The minimum wage and restaurant prices

Daniel Aaronson, Eric French and James MacDonald

No WP-04-21, Working Paper Series from Federal Reserve Bank of Chicago

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.

Keywords: Labor market; Wages; Wages - Restaurants (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (4)

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