Who Pays When We Increase the Minimum Wage? Panel Evidence from Los Angeles County Restaurants

Authors: Christopher R Esposito*, UCLA, Edward Leamer, UCLA Anderson School, Jerry Nickelsburg, UCLA Anderson School
Topics: Economic Geography, Urban and Regional Planning, Geographic Information Science and Systems
Keywords: inequality, minimum wage, los angeles
Session Type: Paper
Day: 4/3/2019
Start / End Time: 2:35 PM / 4:15 PM
Room: Diplomat Room, Omni, West
Presentation File: No File Uploaded

Income inequality in the United States has climbed steadily since the 1970s. While automation and international competition are the main culprits, the policy response from several city and state governments has been to increase their minimum wages. Presently, we have very little evidence on the extent to which these policies will increase the real incomes of low-wage workers. Their effectiveness largely depends on whether the burden of higher wages falls on affluent business owners or on less-affluent customers. In this study, we investigate restaurants’ ability to pass the wage increases mandated by City of Los Angeles and the State of California’s minimum wage laws on to their customers. We develop a novel panel dataset of 900 Los Angeles County restaurants by surveying and tracking the price of 4,757 unique food and beverage items over two years. The quasi-random geographical variation in the effective minimum wage across Los Angeles County, attributable to the City of Los Angeles’ haphazard city borders, allows for causal inference on the impact of minimum wages on restaurant prices and, by extension, their efficacy to combat income inequality.

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