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IZA Discussion Paper No. 17594
January 2025
Menu Adjustment in Response to the Minimum Wage: A Return to the New Jersey-Pennsylvania Border

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.

Kommunikation
Mark Fallak
mark.fallak@liser.lu
+352 585-855-526
World of Labour
Olga Nottmeyer
olga.nottmeyer@liser.lu
+352 585-855-501
Netzwerkkoordination
Christina Gathmann
christina.gathmann@liser.lu

Das IZA@LISER-Netzwerk ist eine weltweite Gemeinschaft für exzellente Forschung in der Arbeitsmarktökonomie und angrenzenden Fachgebieten. Nach dem Wechsel von Bonn wird das Netzwerk nun am Luxembourg Institute of Socio-Economic Research (LISER) koordiniert.

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