The Local Aggregate Effects of Minimum Wage Increases

55 Pages Posted: 23 Oct 2017 Last revised: 6 Feb 2019

See all articles by Daniel Cooper

Daniel Cooper

Federal Reserve Bank of Boston

María José Luengo‐Prado

Federal Reserve Banks - Federal Reserve Bank of Boston

Jonathan A. Parker

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: 2017-08-01

Abstract

This paper examines the effect of minimum wage changes on local aggregate inflation and consumption growth. The paper utilizes variation in state-level minimum wages across locations and finds that minimum wage increases have a relatively modest effect on both city-level inflation and spending growth over the years following the change. The most noticeable effects are for food consumed at home and away from home—industries that typically employ a large share of low-wage and minimum-wage workers. Interestingly, consumers adjust their real food consumption when minimum wages rise, suggesting that some workers benefit from minimum wage changes.

Keywords: minimum wage increases, prices, consumption, local aggregate effects

JEL Classification: E21, E31, E64

Suggested Citation

Cooper, Daniel H. and Luengo-Prado, Maria Jose and Parker, Jonathan A., The Local Aggregate Effects of Minimum Wage Increases (2017-08-01). FRB of Boston Working Paper No. 17-8, Available at SSRN: https://ssrn.com/abstract=3056593

Daniel H. Cooper (Contact Author)

Federal Reserve Bank of Boston ( email )

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Maria Jose Luengo-Prado

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

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Boston, MA 02210
United States

Jonathan A. Parker

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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Cambridge, MA
United States
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National Bureau of Economic Research (NBER)

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