Firms respond to minimum wage hikes in multiple ways.
One study considers a 2023 California bill that raised the minimum wage for fast-food workers from $16 to $20 per hour.
The researchers estimated
a 4.9–5.1 percent increase in fast-food prices and a 2.1–2.2 percent increase in full-service prices.… Additionally, [the] findings suggest that price increases reduced consumers’ demand for fast food by 3.9–4.1 percent and for full-service meals by 1.7–1.8 percent.
Further, the wage hike had
distributional implications, as lower-income households spend a larger share of their budgets at fast-food restaurants.
All in all, this
large, sector-specific minimum wage increase raised labor costs, [which] firms passed … through to consumers by raising prices, and the resulting decline in demand reduced employment.
Exactly what standard economics would predict.
Cross-posted from Substack.
