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The Effect of the Minimum Wage on the Fast Food Industry

Author

Listed:
  • Lawrence F. Katz

    (Harvard University and NBER)

  • Alan B. Krueger

    (Princeton University and NBER)

Abstract

Using data from a longitudinal survey of fast food restaurants in Texas, the authors examine the impact of recent changes in the federal minimum wage on a low-wage labor market. The authors draw three main conclusions - first - the survey results indicate that less than 5 percent of fast food restaurants use the new youth subminimum wage even though the vast majority paid a starting wage below the new hourly minimum wage immediately before it went into effect. Second, although some restaurants increased wages by an amount exceeding that necessary to comply with higher minimum wages in both 1990 and 1991, recent increases in the federal minimum wage have greatly compressed the distribution of starting wages in the Texas fast food industry. Third, employment increased relatively in those firms likely to have been most affected by the 1991 minimum wage increase, while price changes appear to be unrelated to mandated wage changes. These employment and price changes do not seem consistent with conventional views of the effects of increases in a binding minimum wage.

Suggested Citation

  • Lawrence F. Katz & Alan B. Krueger, 1992. "The Effect of the Minimum Wage on the Fast Food Industry," Working Papers 678, Princeton University, Department of Economics, Industrial Relations Section..
  • Handle: RePEc:pri:indrel:298
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    References listed on IDEAS

    as
    1. George A. Akerlof & Janet L. Yellen, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 255-283.
    2. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," ILR Review, Cornell University, ILR School, vol. 46(1), pages 22-37, October.
    3. Sullivan, Daniel, 1989. "Monopsony Power in the Market for Nurses," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 135-178, October.
    4. Richard B. Freeman & Wayne B. Gray & Casey Ichniowski, 1981. "Low-Cost Student Labor: The Use and Effects of the Subminimum Wage Provisions for Full-time Students," NBER Working Papers 0765, National Bureau of Economic Research, Inc.
    5. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," Working Papers 680, Princeton University, Department of Economics, Industrial Relations Section..
    6. Charles Brown & Curtis Gilroy & Andrew Kohen, 1983. "Time-Series Evidence of the Effect of the Minimum Wage on Youth Employment and Unemployment," Journal of Human Resources, University of Wisconsin Press, vol. 18(1), pages 3-31.
    7. repec:fth:prinin:300 is not listed on IDEAS
    8. Alan B. Krueger, 1991. "Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 75-101.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    minimum wage; prices; employment; subminimum wage;

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General

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