Abstract

This paper estimates the pass-through of minimum wage increases into the prices of US grocery and drug stores. We use high-frequency scanner data and leverage a large number of state-level increases in minimum wages between 2001 and 2012. We find that a 10% minimum wage hike translates into a 0.36% increase in the prices of grocery products. This magnitude is consistent with a full pass-through of cost increases into consumer prices. We show that price adjustments occur mostly in the three months following the passage of minimum wage legislation rather than after implementation, suggesting that pricing of groceries is forward-looking. The rise in prices occurs mostly through an increase in the frequency of price increases. Prices rise to the same extent for goods consumed by low-income and high-income households. Our results suggest that consumers rather than firms bear the cost of minimum wage increases in the retail sector.

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