System Working Paper 17-25

The Local Aggregate Effects of Minimum Wage Increases

Daniel Cooper | Federal Reserve Bank of Boston
María José Luengo-Prado | Federal Reserve Bank of Boston
Jonathan A. Parker | Massachusetts Institute of Technology

Published November 9, 2017

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.

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