The Minimum Wage, Restaurant Prices, and Labor Market Structure
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.
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- Eric French & Dan Aaronson, 2004.
"Product Market Evidence on the Employment Effects of the Minimum Wage,"
Econometric Society 2004 North American Summer Meetings
549, Econometric Society.
- Daniel Aaronson & Eric French, 2007. "Product Market Evidence on the Employment Effects of the Minimum Wage," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 167-200.
- Daniel Aaronson & Eric French, 2003. "Product market evidence on the employment effects of the minimum wage," Working Paper Series WP-03-17, Federal Reserve Bank of Chicago.
- Deltas, George, 2007. "Can a minimum wage increase employment and reduce prices in a neoclassical perfect information economy?," Journal of Mathematical Economics, Elsevier, vol. 43(6), pages 657-674, August.
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- Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
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