Worker Earnings, Service Quality, and Firm Profitability: Evidence from Nursing Homes and Minimum Wage Reforms

Abstract

This paper examines whether higher earnings for frontline workers affects the quality of employees' output. I leverage increases in the statutory minimum wage, combined with worker, consumer, and firm outcomes in the nursing home sector. I find that higher minimum wages increase income and retention among low-wage employees and improve consumer outcomes, measured by fewer inspection violations; lower rates of adverse, preventable health conditions; and lower resident mortality. Firms maintain profitability by attracting consumers with a greater ability to pay and increasing prices for these individuals.

Keywords: Minimum wage, nursing homes, efficiency wage, worker performance

JEL Classification: J08, J38, I18, I38