As part of the Fair Labor Standards Act, the federal government introduced a national minimum wage in 1938. Since then, it has raised the wage 22 times; the latest increase, in 2009, lifted it to $7.25 per hour. State-level minimum wage increases have occurred with much greater frequency, especially recently. In 2009 alone, 22 states raised their minimum wage, following 20 state-level increases in 2018. In total, there were 304 changes in the minimum wage at the federal and state levels from 1999 through 2017, resulting in substantial variation in current minimum wages across the United States. The policy intent behind minimum wage laws is to raise the return to employment for low-wage workers. Indeed, the idea of a $15 per hour "living wage" has been growing: In 2016, California and New York each passed legislation to gradually raise its minimum wage to this level; Seattle, in 2014, enacted a similar gradual increase to $15 per hour. Other states have implement more modest multi-year raises.

A voluminous empirical literature largely finds that within the range of the increases historically experienced in the United States, higher minimum wages have minimal employment effects. However, this literature largely overlooks the fact that through local general equilibrium adjustments that go beyond the labor market, the level of the minimum wage should affect prices and consumer spending. Moreover, higher minimum wages may cause fluctuations as local economic conditions adjust to the changed regulations. This paper addresses these less-studied issues by exploiting the variation in minimum wages across the United States and the fact that labor markets are defined by commuting distances. The authors compile a dataset of state-level and city- or county-level minimum wage changes for the 1999–2017 period and use city-level price data from metropolitan statistical areas to measure the dynamic effects that minimum wage increases have on annual changes in city-level prices (inflation).