Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit
We study the impact of the minimum wage on firm exit in the restaurant industry, exploiting recent changes in the minimum wage at the city level. We find that the impact of the minimum wage depends on whether a restaurant was already close to the margin of exit. Restaurants with lower ratings are closer to the margin of exit on average, and are disproportionately driven out of business by increases to the minimum wage. Our point estimates suggest that a one dollar increase in the minimum wage leads to a 10 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating on Yelp), but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale). We expand the analysis to look at prices using data from delivery orders, and find that lower rated restaurants also increase prices in response to minimum wage increases. Our analysis also highlights how digital data can be used to shed new light on labor policy and the economy.
We thank Sylvia Allegretto, Susan Athey, Carl Bialik, Weijia Dai, Arindrajit Dube, Edward Glaeser, Hilary Hoynes, Larry Katz, Hyunjin Kim, Alan Krueger, Kevin Lang, Luther Lowe, Michael Reich, Andrei Shleifer, Paul Wolfson, and seminar participants at the AEA conference, UC Berkeley, Boston University, Stanford University, Dartmouth College, NBER Productivity Seminar, University of Utah, Princeton University, SUNY Albany, Society of Labor Economists Conference, and University of New South Wales, for valuable feedback. We thank Stephanie Chan for providing excellent research assistance for this project. Outside of their academic work, the authors have done consulting for tech companies, including Yelp. Data was provided by Yelp. The ability to publish was not tied to the results of this analysis. All analyses, conclusions, and errors herein are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.