Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/314491 
Year of Publication: 
2025
Series/Report no.: 
IZA Discussion Papers No. 17594
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
This paper studies how output prices are affected by increases in the minimum wage. To the best of our knowledge, we provide the first examination of how the prices of an entire menu of items at a single business adjust in response to a minimum wage increase. Using data we gather form a fast-food chain, we find that a $1 minimum wage rise increased average prices by 7 cents, implying a pass-through elasticity of around 0.13. We also study how the price response across individual goods varies with the labor intensity in production of those goods. Consistent with a theoretical framework we describe, the prices of items that require more labor to produce increased by more due to the minimum wage increase. A $1 increase in the minimum wage raised the item price by an extra 0.3 cents for every additional preparation step. We also find that more price adjustment takes place at the store level than at the item level, and that it takes longer for prices to respond to a minimum wage increase than the existing literature suggests.
Subjects: 
minimum wages
prices
restaurants
menus
JEL: 
J23
J38
L11
L81
Document Type: 
Working Paper

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