Harvard 'Shock' Study: Each $1 Minimum Wage Hike Causes 4-10% Increase In Restaurant

[Peter1469]

Harvard 'Shock' Study: Each $1 Minimum Wage Hike Causes 4-10% Increase In Restaurant failures

Higher minimum wages destroys no-skill and low skill labor position.

A 'shocking' discovery was made when a pair of researchers at Harvard Business School decided to analyze the impact of higher minimum wages in San Francisco on restaurant failures...hint: they went up.

Entitled "Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit", this latest study on the devastating consequences of minimum wage was conducted by Dara Lee Luca and Michael Luca and concluded that each $1 increase in the minimum wage results in a roughly 4-10% increase in the likelihood of a restaurant going out of business.

In this paper, we investigate the impact of the minimum wage on restaurant closures using data from the San Francisco Bay Area. We find suggestive evidence that an increase in the minimum wage leads to an overall increase in the rate of exit.

This paper presents several new findings. First, we provide suggestive evidence that higher minimum wage increases overall exit rates among restaurants, where a $1 increase in the minimum wage leads to approximately a 4 to 10 percent increase in the likelihood of exit, although statistical significance falls with the inclusion of time-varying county-level characteristics and city-specific time trends. This is qualitatively consistent but smaller than what Aaronson et al. (forthcoming) find; they show that a 10 percent raise in the minimum wage increases firm exit by approximately 24 percent from a base of 5.7 percent. Differences in sample and specifications may account for the differences between our study and theirs.

Read the rest of the article at the link.

[Mini Me]

Mis management is the biggest cause of failure!

And a poor owner will blame it on the MW!

[del]

post hoc ergo propter hoc

you'd think they'd know about that in cambridge

[Peter1469]

Your burger is going to be made by a robot.

Unskilled labor is not worth $15 an hour.

[Chris]

post hoc ergo propter hoc

you'd think they'd know about that in cambridge

Right, if only they'd claimed that, your ready-made response would make some sense. Rather that are very clear: "we provide suggestive evidence that higher minimum wage increases overall exit rates among restaurants...."

[Chris]

More interesting (I was just reading the paper) is the finding related to their title, survival of the fittest, that the effects of min wage suggest higher impact on lower rated restaurants: "We show that there is, in fact, considerable and predictable heterogeneity in the effects of the minimum wage, and that the impact on exit is concentrated among lower quality restaurants, which are already closer to the margin of exit. This suggests that the ability of firms to adjust to minimum wage changes could differ depending on firm quality. Finally, we provide evidence that higher minimum wages deter entry, and hastens the time to exit among poorly rated restaurants."

[Newpublius]

Right, if only they'd claimed that, your ready-made response would make some sense. Rather that are very clear: "we provide suggestive evidence that higher minimum wage increases overall exit rates among restaurants...."

Typically minimum wage advocates try to reduce the amount discussed to the smallest number possible to make the amount seem inconsequential. Now take that dollar multiply by 40 × 52 x #employees.

[Newpublius]

More interesting (I was just reading the paper) is the finding related to their title, survival of the fittest, that the effects of min wage suggest higher impact on lower rated restaurants: "We show that there is, in fact, considerable and predictable heterogeneity in the effects of the minimum wage, and that the impact on exit is concentrated among lower quality restaurants, which are already closer to the margin of exit. This suggests that the ability of firms to adjust to minimum wage changes could differ depending on firm quality. Finally, we provide evidence that higher minimum wages deter entry, and hastens the time to exit among poorly rated restaurants."

That would make sense becauae higher priced, premium restaurants, to produce premium quality services justifying top dollar from discriminating workers, need to pay their workforce to get the best the industry offers. It makes sense that lower priced food establishments might not.

Not everybody has $10 a day to spend on lunch.

[Chris]

That would make sense becauae higher priced, premium restaurants, to produce premium quality services justifying top dollar from discriminating workers, need to pay their workforce to get the best the industry offers. It makes sense that lower priced food establishments might not.

Not everybody has $10 a day to spend on lunch.

Indeed, all this makes good common sense. Fixing prices breaks other things.