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The Minimum Wage, Restaurant Prices, and Labor Market Structure

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  • Daniel Aaronson
  • Eric French
  • James MacDonald

Abstract

Using store-level and aggregated Consumer Price Index data, we show that restaurant prices rise in response to minimum wage increases under several sources of identifying variation. We introduce a general model of employment determination that implies minimum wage hikes cause prices to rise in competitive labor markets but potentially fall in monopsonistic environments. Furthermore, the model implies employment and prices are always negatively related. Therefore, our empirical results provide evidence against the importance of monopsony power for understanding small observed employment responses to minimum wage changes. Our estimated price responses challenge other explanations of the small employment response, too.

Suggested Citation

  • Daniel Aaronson & Eric French & James MacDonald, 2008. "The Minimum Wage, Restaurant Prices, and Labor Market Structure," Journal of Human Resources, University of Wisconsin Press, vol. 43(3), pages 688-720.
  • Handle: RePEc:uwp:jhriss:v:43:y:2008:i:3:p:688-720
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    References listed on IDEAS

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