Minimum Wage and Sectoral Price Inflation

Ahsan, Ishmam (2021): Minimum Wage and Sectoral Price Inflation.

Abstract

Albeit being a fiscal policy tool, any federal or regional minimum wage hikes during an inflationary economic environment can have strong policy implications for the Federal Reserve. This paper seeks to explain the relationship between minimum wage hikes and sectoral price dynamics in the United States for two sectors: (i) restaurant sector and (ii) technology sector. I examine the overall relationship between sectoral price inflation and binding minimum wage changes by using a panel data regression model. Estimates suggest that there exists a small, positive and statistically significant relationship between minimum wage hikes and price inflation in the restaurant sector. The share of minimum wage workers in the technology sector is considerably lower and I find a statistically insignificant relationship.

• Item Type: MPRA Paper
• Language: English
• Keywords: Minimum wage; inflation; firm behavior
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General

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