Does the Minimum Wage Bite into Fast-Food Prices?

Emek Basker and Muhammad Taimur Khan
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Muhammad Taimur Khan: Islamic Development Bank

Journal of Labor Research, 2016, vol. 37, issue 2, No 1, 129-148

Abstract: Abstract We study the effect of increases in effective minimum wages on the prices of several fast-food items using quarterly city-level data from 1993–2014, a period during much of which the federal minimum wage declined in real value while state-level legislation flourished. For one product, a burger, we find a robust price elasticity of 9 % with respect to the minimum wage. This estimate indicates substantial cost pass-through when contextualized by the effect of minimum-wage increases on restaurant wage bills. Our estimate for pizza is suggestive of a similarly large pass-through rate but is less precisely estimated, and our estimate for fried chicken is near zero, but estimated even less precisely. Taken as a whole, our estimates point toward sizable cost pass-through of minimum wage increases to consumer prices. These results contribute to a mixed literature on the consumer burden of minimum wage increases.

Keywords: Minimum wage; Fast food; Restaurants; Pass-through; Prices (search for similar items in EconPapers)
JEL-codes: J31 L81 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (10)

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DOI: 10.1007/s12122-016-9224-5

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