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Does the Minimum Wage Bite into Fast-Food Prices?

Author

Listed:
  • Emek Basker

    () (University of Missouri)

  • Muhammad Taimur Khan

    (Islamic Development Bank)

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.

Suggested Citation

  • Emek Basker & Muhammad Taimur Khan, 2016. "Does the Minimum Wage Bite into Fast-Food Prices?," Journal of Labor Research, Springer, vol. 37(2), pages 129-148, June.
  • 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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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Daniel MacDonald & Eric Nilsson, 2016. "The Effects of Increasing the Minimum Wage on Prices: Analyzing the Incidence of Policy Design and Context," Upjohn Working Papers and Journal Articles 16-260, W.E. Upjohn Institute for Employment Research.
    2. Aaronson, Daniel & French, Eric Baird & Sorkin, Isaac, 2016. "Industry Dynamics and the Minimum Wage: A Putty-Clay Approach," CEPR Discussion Papers 11097, C.E.P.R. Discussion Papers.
    3. Wehby, George & Dave, Dhaval M. & Kaestner, Robert, 2016. "Effects of the Minimum Wage on Infant Health," IZA Discussion Papers 10039, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    Minimum wage; Fast food; Restaurants; Pass-through; Prices;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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