The Effects of Increasing the Minimum Wage on Prices: Analyzing the Incidence of Policy Design and Context

Daniel MacDonald and Eric Nilsson
Additional contact information
Eric Nilsson: California State University, San Bernadino

No 16-260, Upjohn Working Papers from W.E. Upjohn Institute for Employment Research

Abstract: We analyze the price pass-through effect of the minimum wage and use the results to provide insight into the competitive structure of low-wage labor markets. Using monthly price series, we find that the pass-through effect is entirely concentrated on the month that the minimum wage change goes into effect, and is much smaller than what the canonical literature has found. We then discuss why our results differ from that literature, noting the impact of series interpolation in generating most of the previous results. We then use the variation in the size of the minimum wage change to evaluate the competitive nature of low-wage labor markets. Finally, we exploit the rich variation in minimum wage policy of the last 10–15 years—including the rise of state and city-level minimum wage changes and the increased use of indexation—to investigate how the extent of price pass-through varies by policy context. This paper contributes to the literature by clarifying our understanding of the dynamics and magnitude of the pass-through effect and enriching the discussion of how different policies may shape the effect that minimum wage hikes have on prices.

Keywords: Minimum wage; pass-through effect; monopsony; public policy (search for similar items in EconPapers)
JEL-codes: J11 J3 J48 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-ger and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://research.upjohn.org/cgi/viewcontent.cgi?art ... ext=up_workingpapers (application/pdf)
This material is copyrighted. Permission is required to reproduce any or all parts.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:upj:weupjo:16-260

Access Statistics for this paper

More papers in Upjohn Working Papers from W.E. Upjohn Institute for Employment Research 300 S. Westnedge Ave. Kalamazoo, MI 49007 USA. Contact information at EDIRC.
Bibliographic data for series maintained by ().