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Wages, Minimum Wages, and Price Pass-Through: The Case of McDonald's Restaurants

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  • Orley Ashenfelter

    (Princeton University)

  • Stepan Jurajda Jurajda

    (CERGE-EI)

Abstract

Based on hourly wage rates from nearly all McDonald's restaurants, and prices of the Big Mac sandwich, we find an elasticity of the wage with respect to the minimum wage of 0.7. This elasticity does not differ between affected and unaffected restaurants because many restaurants maintain a constant wage ‘premium’ above the minimum wage. Higher minimum wages are not associated with faster adoption of touch-screen ordering, and there is near-full price pass-through of minimum wages. Minimum wages lead to higher real wages (expressed in Big Macs per hour) that are one fifth lower than the corresponding increases in nominal wages.

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  • Orley Ashenfelter & Stepan Jurajda Jurajda, 2021. "Wages, Minimum Wages, and Price Pass-Through: The Case of McDonald's Restaurants," Working Papers 646, Princeton University, Department of Economics, Industrial Relations Section..
    • Handle: RePEc:pri:indrel:646
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    Cited by:

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    2. Aleksandra Majchrowska, 2022. "Does minimum wage affect inflation?," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 4, pages 417-436.
    3. Kim, Ji Hwan & Lee, Jungmin & Lee, Kyungho, 2023. "Minimum wage, social insurance mandate, and working hours," Journal of Public Economics, Elsevier, vol. 225(C).
    4. Lennon, Conor & Teltser, Keith F. & Fernandez, Jose & Gohmann, Stephan, 2023. "How morality and efficiency shape public support for minimum wages," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 618-637.

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    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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