As New Jersey steadily increased its minimum wage between 2019 and 2021, fast-food restaurants in the state responded by raising menu prices to offset the added costs. In contrast, neighboring Pennsylvania, where minimum wage hikes were not mandated, did not experience similar price increases. These findings were detailed in a recent paper by economists Kerry Papps from the University of Bradford and Michael R. Strain from Georgetown University and the American Enterprise Institute.
Over a three-year period, the economists monitored weekly menu prices at numerous fast-food establishments along the New Jersey-Pennsylvania border. They discovered that for every $1 raise in the minimum wage, menu prices increased by 7 cents. The minimum wage hikes in New Jersey were a result of legislation passed in 2019, aiming to reach $15 per hour within five years.
While New Jersey’s minimum wage has now surpassed $15 per hour due to automatic adjustments for inflation, Pennsylvania’s minimum wage remains at the federally mandated level of $7.25 per hour. Interestingly, the study showed that menu price adjustments did not occur immediately following the minimum wage increases, typically taking around six weeks to take effect.
Furthermore, the researchers observed that menu items requiring more preparation experienced slightly larger price hikes, suggesting that managers strategically responded to cost increases driven by minimum wage adjustments. This nuanced approach contrasts with uniform price increases across all menu items.
It’s important to note that price surges resulting from minimum wage hikes should not be equated with inflation, which stems from an increase in the money supply. While price hikes due to tariffs or minimum wages may require more dollars for purchases, the impact on consumers remains consistent – higher costs for goods and services.
Ultimately, policymakers face a trade-off between higher wages for workers and increased prices for consumers. New Jersey Governor Phil Murphy has hinted at the possibility of further minimum wage hikes beyond $15, emphasizing the need for a balanced approach that considers both economic impacts and public sentiment.
The study underscores the complex dynamics at play when minimum wages are raised, highlighting the intricate relationship between wage levels, business operations, and consumer prices. Policymakers must carefully weigh these factors to mitigate adverse effects on both businesses and consumers in pursuit of equitable economic policies.
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