Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit

33 Pages Posted: 11 Apr 2017  

Dara Lee Luca

Mathematica Policy Research

Michael Luca

Harvard Business School - Negotiations, Organizations & Markets Unit

Date Written: April 2017

Abstract

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. The evidence suggests that higher minimum wages increase overall exit rates for restaurants. However, lower quality restaurants, which are already closer to the margin of exit, are disproportionately impacted by increases to the minimum wage. Our point estimates suggest that a one dollar increase in the minimum wage leads to a 14 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating), but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale).

Suggested Citation

Luca, Dara Lee and Luca, Michael, Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit (April 2017). Harvard Business School NOM Unit Working Paper No. 17-088. Available at SSRN: https://ssrn.com/abstract=2951110

Dara Lee Luca

Mathematica Policy Research ( email )

P.O. Box 2393
Princeton, NJ 08543-2393
United States

Michael Luca (Contact Author)

Harvard Business School - Negotiations, Organizations & Markets Unit ( email )

Soldiers Field Road
Boston, MA 02163
United States

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=602417

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