Minimum wage increases do NOT pass through to prices | and more | Brookings Institution

Minimum wage increases do not pass through to prices

Although much of the minimum wage debate centers on the effects of minimum wage increases on employment, an increase in the minimum wage might also lead to higher prices by increasing labor costs or by increasing incomes and, thus, demand. Sharat Ganapati and Jeffrey Weaver of Yale conclude that minimum wage increases have no economically significant effect on the prices of food purchased at grocery stores and wholesale clubs, a sector that is particularly important for households in the lowest income quintile. They explain that this very weak pass-through stems from the fact that low-wage labor accounts for only a very small share of costs in this sector. They find that minimum-wage labor is a small share of costs in all sectors other than restaurants and fast food. They conclude that minimum wage increases will have almost no effect on prices in most sectors.


Land use restrictions in high productivity US cities lowered growth by half over the last several decades

Cities such as New York and San Francisco that experienced the highest labor productivity growth over the past few decades also adopted restrictions on new housing construction, driving up housing prices and preventing workers from other areas from moving to take advantage of the higher productivity. Using data from 220 US metropolitan areas, Chang-Tai Hsieh of the University of Chicago and Enrico Moretti of the University of California, Berkeley find that such land use restrictions lowered aggregate GDP growth by about 50 percent between 1964 and 2009.

Chart of the week: The value of the US dollar is back to where it was before the elections

Hutchins Chart of the Week


Source: Brookings

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