Minimum Wage and Real Wage Inequality: Evidence from Pass-Through to Retail Prices

Leung, Justin

doi:10.2139/ssrn.2786411

Cited by 23 publications

(45 citation statements)

References 27 publications

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“…Our paper also relates to a large body of work on the extent and implications of local retail price responses to economic shocks or incentives. Work by Gagnon and López-Salido (forthcoming), Cawley et al (2018), and Leung (2018) provide direct evidence supporting our claim that uniform pricing dampens responses to local shocks. Our work also speaks to the literature tracing out the implications of retail firms' price setting for macroeconomic outcomes, including influential early work using scanner data by Bils and Klenow (2004) and Nakamura and Steinsson (2008), and recent contributions such as Anderson et al (2017).…”

Section: Introductionsupporting

confidence: 79%

“…Cawley et al (2018) show that pass-through of a Philadelphia soda tax into supermarket prices was smaller at chain stores than at independent retailers. Leung (2018) shows that the pass-through of a local minimum wage change into prices is moderate for supermarkets and negligible for drug and mass merchandise stores, citing the uniform pricing documented here as a likely explanation. In contrast, Stroebel and Vavra (forthcoming) document relatively large effects of house prices on local retail prices; one explanation is that house price changes are correlated at the regional level and so translate into larger price changes than more localized shocks, consistent with the predictions in Table XI.…”

Section: Response To Local Shocksmentioning

confidence: 69%

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Uniform Pricing in U.S. Retail Chains*

DellaVigna

Gentzkow

2019

The Quarterly Journal of Economics

304

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We show that most U.S. food, drugstore, and mass-merchandise chains charge nearly uniform prices across stores, despite wide variation in consumer demographics and competition. Demand estimates reveal substantial within-chain variation in price elasticities and suggest that the median chain sacrifices ${\$}$16 million of annual profit relative to a benchmark of optimal prices. In contrast, differences in average prices between chains are broadly consistent with the optimal benchmark. We discuss a range of explanations for nearly uniform pricing, highlighting managerial inertia and brand image concerns as mechanisms frequently mentioned by industry participants. Relative to our optimal benchmark, uniform pricing may significantly increase the prices paid by poorer households relative to the rich, dampen the response of prices to local economic shocks, alter the analysis of mergers in antitrust, and shift the incidence of intranational trade costs.

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Section: Introductionsupporting

confidence: 79%

Section: Response To Local Shocksmentioning

confidence: 69%

Uniform Pricing in U.S. Retail Chains*

DellaVigna

Gentzkow

2019

The Quarterly Journal of Economics

304

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“…While we cannot directly measure whether the increase in real consumption is primarily coming from households with low-wage workers, if the spending gains are at least proportional, then this finding runs counter to the conclusion in MaCurdy (2015) that minimum wage changes provide little benefit to the poor. Our results are broadly consistent with Alonso (2016) and Leung (2018), studies that also find some evidence of increases in real (nondurable) sales following a minimum wage hike. The authors of these studies take different approaches to estimating real consumption, with the approach by Leung (2018) most similar to ours.…”

Section: Minimum Wage Changes and Consumptionsupporting

confidence: 89%

“…Basker and Kahn (2016) find full pass-through of minimum wage changes to prices in the fast-food sector (limited-service restaurants; NAICS 7222). In addition, using Nielsen retail scanner data, Leung (2018) finds a large pass-through of minimum wages to grocery store prices but not drugstore or general merchandise store prices. In contrast, Ganapati and Weaver (2017) find much more limited pass-through of minimum wages to grocery store and wholesale club prices.…”

Section: The Estimates Inmentioning

confidence: 99%

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The Local Aggregate Effects of Minimum Wage Increases

Cooper¹,

Luengo‐Prado²,

Parker³

2019

J of Money Credit Banking

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Using variation in minimum wages across cities and controlling for differences in business‐cycle factors and long‐run local economic trends, we find that following minimum wage increases, both, prices and nominal spending rise modestly. These gains are larger for certain subcategories of goods such as food away from home and in locations where low‐wage workers account for a larger share of employment. Further, minimum wage increases are associated with reduced total debt among households with low credit scores, higher auto debt, and increased access to credit.

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An Argument Against the $15 Minimum Wage

Strain¹

2021

J Policy Anal Manage

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The federal minimum wage was increased most recently 12 years ago, when it was set at $7.25. Since then, price inflation has translated into a substantial decline in the real value of that $7.25 minimum wage. As the value of the federal minimum wage has declined, many states and cities have stepped in to set their own local minimum wages at levels above $7.25. According to the Economic Policy Institute, 30 states and the District of Columbia now have a minimum wage higher than the federal minimum wage, and 45 localities have adopted minimum wages above their state minimum wage. Earlier this year, the Raise the Wage Act of 2021 was introduced to raise the federal minimum wage, in annual increments, to $15 per hour by June 2025 and then adjust it to increase at the same rate as median hourly wages. So far, the legislation does not have enough support to pass the Senate.In this Point/Counterpoint debate, we address whether it is in the public's interest to gradually increase the minimum wage over five years to $15 per hour, as proposed in the Raise the Wage Act. 1 Michael Strain of the American Enterprise Institute argues that the proposed increase is large enough that it risks generating substantial job losses. Strain acknowledges that the increase in the minimum wage would increase incomes for the working poor, but he believes that the Earned Income Tax Credit could be used to generate similar benefits without incurring the job losses that would result from a higher minimum wage. Michael Reich of the University of California at Berkeley asserts that the magnitude of the proposed minimum wage increase is not unprecedented, and the most careful empirical studies demonstrate that the job losses associated with an increase of this magnitude are likely to be minimal. Those studies show that past minimum wage increases tended to be absorbed through small price increases in the affected industries, with minimal negative effects on employment. ACKNOWLEDGMENTI thank Kevin Kelly of Mathematica for outstanding assistance in organizing this section.

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Minimum Wage and Real Wage Inequality: Evidence from Pass-Through to Retail Prices

Cited by 23 publications

References 27 publications

Uniform Pricing in U.S. Retail Chains*

Uniform Pricing in U.S. Retail Chains*

The Local Aggregate Effects of Minimum Wage Increases

An Argument Against the $15 Minimum Wage

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