Assessing the Main and Spillover Effects of Seattle’s Minimum Wage on Establishment Decisions

63 Pages Posted: 18 Apr 2022 Last revised: 11 Jun 2023

See all articles by Sharada Dharmasankar

Sharada Dharmasankar

University of Wisconsin - Madison

Hoyoung Yoo

University of Wisconsin-Madison

Date Written: March 17, 2022

Abstract

We use the introduction of Seattle's local minimum wage to investigate the geographic effects of highly-targeted, city-level minimum wages on establishment entry and exit decisions. We explicitly consider the spillover effects of Seattle's minimum wage on business entry and exit decisions in the surrounding areas, in addition to the main effect. We use an event study framework to estimate these effects on two low-wage industries: hospitality and retail. We find strong, statistically significant spillover effects on establishment entries at the census block level in the hospitality and retail sectors 1-2 years after Seattle's minimum wage is announced relative to establishment churn before the minimum wage announcement. The estimated spillover effects are positive, implying an increase in the number of establishments entering the areas surrounding Seattle after the announcement of the minimum wage. There is a corresponding decline in entries for both sectors in Seattle itself. Our findings on exits are inconclusive. Both spillover and main effects are more concentrated in retail. We estimate our effects using a novel data set containing a full census of establishments with precise locations for businesses in the state of Washington. Our findings suggest that spillover effects on neighboring areas should be considered to holistically assess the impacts of city-level minimum wages.

Keywords: Spillover Effect, Citywide Minimum Wage, Seattle, Establishment Entry

JEL Classification: J01, J08, J31, J38, R30

Suggested Citation

Dharmasankar, Sharada and Yoo, Hoyoung, Assessing the Main and Spillover Effects of Seattle’s Minimum Wage on Establishment Decisions (March 17, 2022). Available at SSRN: https://ssrn.com/abstract=4059659 or http://dx.doi.org/10.2139/ssrn.4059659

Sharada Dharmasankar

University of Wisconsin - Madison ( email )

Hoyoung Yoo (Contact Author)

University of Wisconsin-Madison ( email )

1180 Observatory Drive
Madison, WI 53706
United States

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