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  • 2018
  • Working Paper
  • HBS Working Paper Series

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

By: Dara Lee Luca and Michael Luca
  • Format:Print
  • | Language:English
  • | Pages:44
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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. 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 at all observed minimum-wage levels 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 14% 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). Looking at data from delivery orders, we find that lower-rated restaurants also increase prices in response to minimum-wage increases. Overall, our analysis also highlights how digital data can be used to shed new light on labor policy and the economy.

Keywords

Wages; Business Exit or Shutdown; Food and Beverage Industry

Citation

Luca, Dara Lee, and Michael Luca. "Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit." Harvard Business School Working Paper, No. 17-088, April 2017. (Revised August 2018.)
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About The Author

Michael Luca

Negotiation, Organizations & Markets
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Related Work

    • 2018
    • Faculty Research

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

    By: Dara Lee Luca and Michael Luca
Related Work
  • Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit By: Dara Lee Luca and Michael Luca
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