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Restaurant Prices and the Minimum Wage

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Abstract:

In this paper, we examine the effect of the minimum wage on restaurant prices. We contribute both to the study of economic impact of the minimum wage and to the study of microeconomic patterns of price stickiness. For this purpose, we use a unique data set of individual price quotes collected to calculate the Consumer Price Index in France and we estimate a price rigidity model based on a flexible   rule. We find a positive and significant impact of the minimum wage on prices. The effect of the minimum wage on prices is, however, very protracted. A change in the minimum wage takes more than a year to fully pass through to retail prices.

Keywords: D43; E31; L11; inflation; minimum wage; price stickiness; restaurant prices

Document Type: Research Article

DOI: http://dx.doi.org/10.1111/j.1538-4616.2010.00339.x

Affiliations: 1: Denis Fougère is a Senior Researcher at Centre National de la Recherche Scientifique (CNRS, Paris); CNRS, CREST, Ecole Polytechnique and Banque de France (Paris), CEPR (London), and IZA (Bonn) (: )., Email: fougere@ensae.fr 2: Erwan Gautier is an Economist, DEMS-SAMIC, Banque de France, Paris (: )., Email: erwan.gautier@banque-france.fr 3: Hervé Le Bihan is the Head of Microeconomic Analysis Division, DEMS-SAMIC, Banque de France, Paris (: )., Email: herve.lebihan@banque-france.fr

Publication date: October 1, 2010

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