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How Firms Construct Price Changes: Evidence from Restaurant Responses to Increased Minimum Wages
Author(s) -
MacDonald James M.,
Aaronson Daniel
Publication year - 2006
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/j.1467-8276.2006.00859.x
Subject(s) - economics , construct (python library) , food prices , wage , price index , index (typography) , minimum wage , monetary economics , consumer price index (south africa) , labour economics , microeconomics , agriculture , monetary policy , food security , biology , ecology , world wide web , computer science , programming language
We use price data underlying the Consumer Price Index to assess how restaurants, whose prices are generally quite sticky, respond to minimum wage increases. Aggregate prices rise, quickly, by amounts reflecting the increase in costs, and they rise more among fast food outlets and in low‐wage locations. But restaurants do not construct price increases by raising all their prices by amounts reflecting the increase in wages. Instead, they raise only some prices, but by larger amounts. Prices at cluster points are less likely to be changed, and prices that were recently increased (decreased) are less (more) likely to be raised.