This paper considers the impact of the minimum wage on both labor and product markets using detailed store-level scanner data. I provide empirical evidence that a 10% increase in the minimum wage raises grocery store prices by 0.6% to 0.8% and suggest that the minimum wage not only raises labor costs but also affects product demand, especially in poorer regions. This points to novel channels of heterogeneity in pass-through that have distributional consequences, with key implications for real wage inequality. I also find that price rigidity within retail chains ameliorates these effects, reducing the pass-through elasticity for retail prices by about 60%.
I am grateful to the editor and anonymous referees for insightful comments. I also thank Marianne Bertrand, Stéphane Bonhomme, José Ignacio Cuesta, Stefano DellaVigna, Sharat Ganapati, Austan Goolsbee, Michael Greenstone, Günter Hitsch, Erik Hurst, Xavier Jaravel, Neale Mahoney, Magne Mogstad, Derek Neal, David Neumark, Krisztina Orbán, Juan Ospina, Canice Prendergast, Hee Kwon Seo, Chad Syverson, Joseph Vavra, Jeff Weaver, Michael Weber, Glen Weyl, Owen Zidar, and seminar participants at the University of Chicago for valuable comments and advice. Researchers' own analyses calculated (or derived) based in part on data from the Nielsen Company (U.S.), LLC and marketing databases provided through the Nielsen data sets at the Kilts Center for Marketing Data Center at the University of Chicago Booth School of Business. The conclusions drawn from the Nielsen data are those of the researchers and do not reflect the views of Nielsen. Nielsen is not responsible for, had no role in, and was not involved in analyzing and preparing the results reported herein.
A supplemental appendix is available online at https://doi.org/10.1162/rest_a_00915.