Are minimum wage increases absorbed by small price increases?
- Author(s): Allegretto, Sylvia A.;
- Reich, Michael
- et al.
Published Web Locationhttp://irle.berkeley.edu/are-minimum-wage-increases-absorbed-by-small-price-increases/
On November 8, 2016, voters in Arizona, Colorado, Maine and Washington enacted large increases in their states’ minimum wage levels—to $12 and higher. These states join California, New York, Oregon and eight large cities that will be increasing their minimum wages to levels at or near $15. What are the expected effects of such minimum wage increases? Will they reduce jobs, lead to price increases, and/or reduce profits? We take advantage of the emergence of websites such as AllMenus and GrubHub to obtain information about restaurant menu prices, and show that an overnight 25 percent increase in San Jose in 2013 led to price increases, on average, of about 1.5 percent. San Jose was thus able to substantially boost the wages of the lowest paid workers without layoffs or reducing the competitiveness of its restaurants. These results suggest that the new and higher minimum wages may primarily transfer income from most consumers to low-wage workers.