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

NOM Unit Working Paper No. 17-088
Publisher: Boston, MA: Harvard University Business School
Apr 11, 2017
Authors
Dara Lee Luca and Michael Luca
The authors 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).