This paper estimates the pass-through of minimum wage increases into prices of US grocery stores. We use high-frequency scanner data and leverage a large number of state-level increases in minimum wages between 2001 and 2012. We find that a 10% minimum wage hike translates into a 0.2% increase in grocery prices. This magnitude is consistent with a full pass-through of cost increases into consumer prices. We show that price adjustments occur mostly in the three months following the passage of minimum wage legislation rather than after implementation, suggesting that pricing of groceries is forward-looking. Prices rise as much for goods consumed by low-income and for those consumed by high-income households. Depending on household income, grocery price increases offset between 3 and 12% of the nominal income gains. Our results suggest that consumers rather than firms bear the cost of minimum wage increases in the grocery sector. Yet, price increases in grocery stores offset only a small fraction of the income gains from minimum wage hikes for low-income households.Media coverage: Marginal Revolution, National Affairs Findings Blog, Brad Delong
We analyze export price adjustment of Swiss manufacturing firms using a novel data set of matched export, import, and domestic prices. After a large, unexpected, and permanent appreciation of the Swiss franc, export prices set in domestic currency fell less than export prices set in foreign currency. This difference prevails if we control for variation in firms' marginal cost. Through the lens of a structural model, this difference can be traced back to strategic complementarity in price setting for firms pricing in foreign currency. Meanwhile, firms setting prices in domestic currency exhibit no strategic complementarity and follow a constant markup-pricing rule.
I study the response of markups and prices of products sold in US grocery stores to cyclical demand shocks between 2006 and 2010. I first show that under plausible assumptions on the production technology of multiproduct retailers, I can identify causal effects on markups using a combination of fixed effects and appropriate demand shifters. I then use variation in products' income elasticity of demand to construct cyclical demand shifters that are plausibly unrelated to cyclical supply shocks. I find that in response to a positive 10% demand shock, markups decrease by up to 5pp. My results support theories of countercyclical product level markups as proposed, for example, in Ravn et. al. (2006, 2008).
I show that during the great recession, Danish firms with low cash balances increase their price relative to firms with high cash balances, as in Gilchrist et. al. (2017). To address the limitations of lagged cash balances as a proxy for credit constraints, I link firms to their banks and use differences in banks' exposure to short-run money markets to construct exogenous shocks to firms' credit supply.
We estimate the response of firms' prices to exogenous wage pressure 2000–2018. We use an identification strategy developed in Carlsson and Skans (2012) and construct shocks to workers' outside option based on the wages of similar workers in other firms in the same labor market. We find that better outside options translate into higher wages, but pass-through of these wage increases to prices is low throughout the sample period and has decreased to close to zero after 2008.