Minimum Wage and Sectoral Price Inflation

Ishmam Ahsan

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Minimum wage; inflation; firm behavior (search for similar items in EconPapers)
JEL-codes: D21 E31 J30 (search for similar items in EconPapers)
Date: 2021-04, Revised 2023-05
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