Accepted, Review of Economics and Statistics
This paper jointly considers the impact of the minimum wage on both labor and product markets using detailed store-level scanner data. I provide empirical evidence that a 10% increase in the minimum wage raises grocery store prices by 0.6%-0.8%, and suggest that the minimum wage not only raises labor costs but also affects product demand, especially in poorer regions. This points to novel channels of heterogeneity in pass-through that have distributional consequences, with key implications for real wage inequality, residential segregation, and future minimum wage increases. I also find that price rigidity within retail chains ameliorates these effects, reducing the pass-through elasticity for retail prices by about 60%.
We study the effect of the Supplemental Nutrition Assistance Program (SNAP) on retail prices nationwide. Program adjustments at the state level motivate our identification strategy. A 1% increase in benefits per population raises grocery prices by a persistent 0.08%. A calibrated partial-equilibrium model implies a marginal benefit dollar raises a recipient’s consumer surplus from groceries by $0.7, producer surplus by $0.5, and lowers each non-SNAP consumer’s surplus by $0.06, because of a large marginal-propensity-to-consume-food out of SNAP, low elasticities of demand, and market power. To guarantee the real intended spending power on food, benefits should be increased by 10%.