Harvard Study: Minimum Wage Laws reduce employment AND consumer choice

By | April 19, 2017

Image result for restaurant closedIn a study published by the Harvard Business School, researchers found a direct impact on the number of firms that are forced to shut down as the minimum wage is increased:

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).

In practical terms that means higher minimum wage rates result in

  1. fewer restaurants that hire minimum wage workers,
  2. which means fewer options for lower income restaurant patrons, and
  3. fewer restaurant jobs for workers at the low end of the wage scale.

Source: Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit by Dara Lee Luca, Michael Luca :: SSRN