The impact of a minimum wage increase on prices

Minimum wage increases have the potential to impact a range of outcomes. Much of the existing evidence focuses on the employment outcomes of minimum wage workers following a minimum wage change. However, another important channel of adjustment that has received comparatively less attention is the impact on prices. When facing wage pressure and higher labour costs following a minimum wage increase, some firms may respond by raising prices and therefore shift part of the cost increase to consumers. From a policy perspective, the possibility of minimum wage related price increases can lead to concerns around general price inflation, affordability and competitiveness.

In order to assess the relationship between minimum wage policy and prices, we use data on approximately 600 price categories in Ireland over the period 2012-2025. Our approach is to examine the causal impact of minimum wage increases on the prices of goods or services that are produced using high concentrations of minimum wage employees. Price categories that are associated with occupations or sectors that employ a high number of minimum wage employees include: hairdressing, takeaway food/coffee, restaurant meals, hotels, alcohol sold in licenced premises. Price changes that occur within these categories may relate to general inflation dynamics and/or minimum wage changes. We use a triple differences estimator to attempt to separate these effects, allowing us to isolate the causal effect of a minimum wage increase on prices. We apply this to eight minimum wage increases that occurred in the following years: 2016, 2017, 2018, 2021, 2022, 2023, 2024, 2025.