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Restaurant Prices and the Minimum Wage

Authors


  • We are grateful to two anonymous referees for very helpful suggestions. We would like to thank participants in the Annual Meeting of the Canadian Economic Association (Halifax, 2007), in the JMA Conference (Saint-Denis-de-la-Réunion, 2008), in the Third Annual Meeting of the American Association of Wine Economists (Reims, 2009), in the Conference “Understanding Price Dynamics: Recent Advances” (Paris, 2009), and seminar participants at the Bundesbank (Frankfurt-am-Main, 2007), at the Banque de France (Paris, 2008), at the Federal Reserve Bank of Chicago (Chicago, 2008), at the European Central Bank (Frankfurt-am-Main, 2008), and at MIT (Boston, 2008) for their comments on preliminary versions of this paper. We would also like to thank Daniel Aaronson, Gadi Barlevy, Ricardo Caballero, Patrick Fève, Jonas Fisher, Eric French, Oleksiy Kryvtsov, and Yannick L'Horty for helpful remarks and discussions. This paper does not necessarily reflect the views of the Banque de France.

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 inline image 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.

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