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.
Authors
CPP Co-Director
Eric is the Montague Burton Professor of Industrial Relations and Labour Economics at the University of Cambridge and Professor of Economics at UCL.
Daniel Aaronson
James MacDonald
Journal article details
- DOI
- 10.3368/jhr.43.3.688
- Publisher
- Board of Regents of the University of Wisconsin System
- Issue
- Volume 43, No. 3, July 2008, pages 688-720
Suggested citation
D, Aaronson and E, French and J, MacDonald. (2008). 'The minimum wage, restaurant prices, and labor market structure' 43, No. 3(2008), pp.688–720.
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