Quote from a recent study:
https://research.upjohn.org/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1278&context=up_workingpapers
So, considering the full period over which a minimum wage affects prices, we find that a 10 percent increase in the minimum wage leads to a 0.36 percent net increase in prices. That is, if a $10.00 item experienced this average price increase, it would become a $10.04 item.
I know part of the reason is that this is a local minimum wage increase, and the price includes non-local and foreign labor, but how much of the effect is explained by this?
Some more quotes... but keep in mind that I didn't read most of this paper:
Implications for perfect vs imperfect competition:
The size of the price increase (and so the implied welfare loss to consumers) we find is lower than previously reported: Aaronson (2001) reports a 10 percent increase in the minimum wage causes a net 0.67 percent increase in the nine months centered on the month the minimum wage hike is imposed.24 We find a price increase for the same period close to half of that reported by Aaronson (0.36 percent vs. 0.67 percent), and so our findings suggest a lower welfare loss to consumers following a minimum wage hike.
The importance of our findings goes beyond finding a reduced welfare impact on consumers when a minimum wage hike is imposed. Building on a set of reasonable assumptions about the operation of restaurants in a hypothetical perfectly competitive market, Aaronson and French (2007) argue that restaurants in perfectly competitive markets will fully pass through any increase in the minimum wage and that the full pass-through elasticity will be equal to approximately 0.07. Since they find, in various regressions, elasticities near 0.07, they conclude that low-wage restaurant labor markets are best characterized as perfectly competitive. The implication of being in a perfectly competitive market is that any minimum wage increase will reduce employment.
However, we get results inconsistent with highly competitive low-wage labor markets in the restaurant industry: our elasticity of 0.036 for the nine months centered on the month of a minimum wage hike and of 0.043 for the much narrower period of [T − 1,T + 1] fall short of the 0.07 Anderson and French (2009) argue is consistent with perfect competition. However, our finding that the pass-through falls short of that implied by perfect competition does not provide positive support for any particular alternative structure of low-wage labor markets. In the next section, we consider whether the data we have provide positive support for one alternative labor market structure, monopsonistic competition.
Summary of the paper:
SUMMARY
There are several findings in this paper. First, the impact of minimum wage hikes on output prices (more precisely, on the FAFH CPI) is substantially smaller than previously reported. Whereas the commonly accepted elasticity of prices to minimum wage changes is 0.07, we find a value almost half of that, 0.036. Importantly, the value we found, 0.036, falls far short of what would be expected if low-wage labor markets are perfectly competitive. Second, increases in prices following minimum wage hikes generally occur in the month the minimum wage hike is implemented (and not in the month before or the month after). Previous research has reported notable increases in prices the month before and the month after, but we present evidence that such a finding was likely an artifact of interpolation.
Third, the effects of federal, state, and city minimum wages on prices are not necessarily the same: the size of the effect, along with when the price effect occurs, can potentially change for these different types of minimum wage policies. Fourth, small minimum wage hikes do not lead to higher prices, and they might actually lead to lower prices. On the other hand, large minimum wage hikes have clear positive effects on output prices. Such a finding about the different effect of small and of large minimum wage hikes is consistent with the claim that low- wage labor markets are monopsonistically competitive. If such labor markets are indeed monopsonistically competitive, then small increases in minimum wages might lead to increased employment. Our study of restaurant pricing, then, indirectly addresses one of the more contentious issues associated with the employment impact of minimum wage hikes. Fifth, we find no evidence suggesting that exit of restaurants fleeing state minimum wage hikes is large enough to affect output prices.
Finally, we find evidence that the particulars of a minimum wage policy (indexed, one- shot, scheduled) might affect how price changes occur within the relevant area. These results can be used to design future minimum wage policies that best temper the pass-through effect.
Let's take generous estimates and say that there are 170M people in the workforce, and the average minimum wage is $11.00, assuming they all work a full-time amount of 2000 hours, that comes out to $3.74 trillion, as the theoretical maximum amount that could be made up by minimum wages.
The GDP of the USA is about $29 trillion (2024).
3.74T/29T is about 12.90%. Realistically, because few minimum wage jobs are truly full-time, it's going to be lower. The example in the study is 3.6%.
55.9% of all workers in the country could be making minimum wage or something closely tied to it, and that would line up with the findings of the study. But it's probably a little bit more, because of our generous estimates. That's the real noteworthy takeaway.
The rest of the GDP, the $27.13 trillion, is made up of wages not tied to the minimum, capital gains, and other revisions of valuation. Total wages were $10.5 trillion in 2022, and $11.1 trillion in 2023. They're trying to tell you that wages make the price go up, but wages only make up 40% of prices today (with minimum wages making up less than 1/6 of that); the remaining 60% is something else.
You spend a total of $1.36 on something after taxes. State and local taxes take $0.10, federal takes $0.26. $0.07 is spread out amongst all workers for the minimum wage. $0.33 is spread out among higher-wage workers. $0.60 goes to Porky. "Boss makes a dollar, I make a dime" is surprisingly accurate for minimum wage workers today: for every dime each one of them makes, the owners of the company make about a dollar.
This analysis is entirely leaving aside the principle that poor people spend more on tangible things, and spend it more quickly, which arguably increases the velocity of money in the economy, but that's a harder thing to measure.