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The Minimum Wage, Restaurant Prices, and Labor Market Structure
Daniel Aaronson Federal Reserve Bank of Chicago Eric French Federal Reserve Bank of Chicago James M. MacDonald U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) October 19, 2005 FRB of Chicago Working Paper No. 2004-21 Abstract: Using both store-level and aggregated price data from the food away from home component of the Consumer Price Index survey, we show that restaurant prices rise in response to an increase in the minimum wage. These results hold up when using several different sources of variation in the data. We interpret these findings within a model of employment determination. The model implies that minimum wage hikes cause employment to fall and prices to rise if labor markets are competitive but potentially cause employment to rise and prices to fall if labor markets are monopsonistic. Therefore, our empirical results appear to provide evidence against the hypothesis that monopsony power is important for understanding the small observed employment responses to minimum wage changes.
Keywords: Minimum wage, prices, monopsony JEL Classifications: E30, J23, J42 Working Paper SeriesDate posted: December 11, 2004 ; Last revised: December 28, 2005Suggested CitationContact Information
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