The Impact of Minimum Wage on Food Away From Home Expenditure Using Structural Equation Model

Abstract

This paper develops the proxy variable for food away from home price to solve the omitted variable problem in FAFH expenditure. Secondly, this paper incorporates two equations for FAFH price and demand to capture the minimum wage shock on food away from home expenditure. Decomposing food away from home expenditures to demand and price, this study determines the path of minimum wage shock on food away from home expenditures. A structural equation model framework with data from Bureau of Labor Statistics for periods through 2005 to 2010 is used. We find that the minimum wage has a positive relationship with the price level of food away from home, but a price does not have a significant effect on food away from home demand. It infers that the employment in restaurant industries may not be reduced by an increase of minimum wage.

Keywords: Food away from home (FAFH), minimum wage, structural equation model (SEM)

JEL Classification: J3, L11, Q10, R2