How Firms Construct Price Changes: Evidence from Restaurant Responses to Increased Minimum Wages

Posted: 8 May 2006

See all articles by James M. MacDonald

James M. MacDonald

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS)

Daniel Aaronson

Federal Reserve Bank of Chicago

Abstract

We use price data underlying the Consumer Price Index to assess how restaurants, whose prices are generally quite sticky, respond to minimum wage increases. Aggregate prices rise, quickly, by amounts reflecting the increase in costs, and they rise more among fast food outlets and in low-wage locations. But restaurants do not construct price increases by raising all their prices by amounts reflecting the increase in wages. Instead, they raise only some prices, but by larger amounts. Prices at cluster points are less likely to be changed, and prices that were recently increased (decreased) are less (more) likely to be raised.

Suggested Citation

MacDonald, James M. and Aaronson, Daniel, How Firms Construct Price Changes: Evidence from Restaurant Responses to Increased Minimum Wages. American Journal of Agricultural Economics, Vol. 88, No. 2, pp. 292-307, May 2006. Available at SSRN: https://ssrn.com/abstract=896333 or http://dx.doi.org/10.1111/j.1467-8276.2006.00859.x

James M. MacDonald

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) ( email )

355 E Street, SW
Washington, DC 20024-3221
United States
(202) 694-5610 (Phone)

Daniel Aaronson (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604-1413
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
545
PlumX Metrics