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Research ArticleArticles

The Minimum Wage, Restaurant Prices, and Labor Market Structure

Daniel Aaronson, Eric French and James MacDonald
Journal of Human Resources, July 2008, 43 (3) 688-720; DOI: https://doi.org/10.3368/jhr.43.3.688
Daniel Aaronson
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Eric French
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James MacDonald
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Abstract

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.

  • Received May 2007.
  • Accepted August 2007.

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Journal of Human Resources
Vol. 43, Issue 3
1 Jul 2008
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The Minimum Wage, Restaurant Prices, and Labor Market Structure
Daniel Aaronson, Eric French, James MacDonald
Journal of Human Resources Jul 2008, 43 (3) 688-720; DOI: 10.3368/jhr.43.3.688

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The Minimum Wage, Restaurant Prices, and Labor Market Structure
Daniel Aaronson, Eric French, James MacDonald
Journal of Human Resources Jul 2008, 43 (3) 688-720; DOI: 10.3368/jhr.43.3.688
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