When New Jersey Hiked Minimum Wages, Fast Food Prices Rose
If politicians want stuff to be more affordable, they should stop implementing policies that have the opposite effect.
As New Jersey ratcheted up its minimum wage on three occasions between 2019 and 2021, fast-food restaurants in the state responded by hiking menu prices to compensate.
In neighboring Pennsylvania, where minimum wage hikes weren't mandated, those price increases did not occur.
That's the notable (if perhaps unsurprising) finding reported in a paper published this week. Kerry Papps, an economist at the University of Bradford, and Michael R. Strain, a Georgetown University economist and director of economic policy studies at the American Enterprise Institute, spent three years tracking weekly menu prices at dozens of fast-food joints along the New Jersey–Pennsylvania border. They concluded that every $1 increase to the minimum wage resulted in a 7 cents increase in menu prices.
Those minimum wage increases were a result of a bill passed in 2019 that raised the mandated wage to $15 per hour over five years. The first increase in July 2019 brought the state's minimum wage up to $10 per hour (from $8.85 per hour), with subsequent $1 per hour increases every January from 2020 to 2024.
Today, New Jersey's minimum wage is a little more than $15 per hour, thanks to a provision that automatically raises the minimum wage along with inflation. Meanwhile, Pennsylvania's minimum wage is $7.25, which is the federally mandated level.
Interestingly, the study found that menu price hikes did not occur immediately after the minimum wage increases. Rather, it took an average of about six weeks for menu prices to rise.
This is one of those situations where a picture might be worth a thousand words, so here's the key result of the study:
Additionally, the researchers found that menu items requiring more preparation work saw slightly larger price increases. That suggests that "managers behave rationally when responding to increases in costs brought about by the minimum wage…rather than simply raising prices evenly across the board," wrote Papps and Strain.
As with price increases caused by tariffs, it's not strictly accurate to view price surges triggered by minimum wage hikes as inflation. Of course, inflation is the result of an expansion in the money supply, so that more dollars are required to buy the same amount of goods. When tariffs or minimum wages cause higher prices, products cost more dollars to obtain. It's a technical difference, but from the perspective of a consumer, the outcome is the same: You spend more money to get the same amount of stuff.
It's certainly possible for policymakers to see that trade-off as an acceptable one. Maybe it's worth forcing consumers to pay higher prices so workers can earn higher wages.
What's not possible is to deny the existence of the trade-off in the first place. That's something lawmakers should keep in mind, particularly since New Jersey Gov. Phil Murphy (D) is talking about the possibility of hiking the minimum wage again now that the $15 threshold has been met.
"Frankly, I wonder whether or not we shouldn't be taking this higher," Murphy told WYNC radio last year. "That's something that I'd be very open to."
If politicians want the public to stop being so upset about price increases, they should stop pursuing policies that directly contribute to higher prices.
