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Does the Minimum Wage Bite into Fast-Food Prices?

Listed author(s):
  • Emek Basker

    ()

    (University of Missouri)

  • Muhammad Taimur Khan

    (Islamic Development Bank)

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.

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File URL: http://link.springer.com/10.1007/s12122-016-9224-5
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Article provided by Springer in its journal Journal of Labor Research.

Volume (Year): 37 (2016)
Issue (Month): 2 (June)
Pages: 129-148

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Handle: RePEc:spr:jlabre:v:37:y:2016:i:2:d:10.1007_s12122-016-9224-5
DOI: 10.1007/s12122-016-9224-5
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Order Information: Web: http://www.springer.com/economics/journal/12122

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  1. Sara Lemos, 2008. "A Survey Of The Effects Of The Minimum Wage On Prices," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 187-212, February.
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  13. Allegretto, Sylvia A., 2013. "Waiting for Change: Is it Time to Increase the $2.13 Subminimum Wage?," Institute for Research on Labor and Employment, Working Paper Series qt3zx9v0zk, Institute of Industrial Relations, UC Berkeley.
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