Harvard: Minimum Wage Hikes In California Have Led To Major Restaurant Closings
Who would have ever imagined that increasing labor costs affects restaurant profitability? Raise the cost of doing business in a cut-throat low margin industry and the smaller business will go under. Well in other news, water is still wet.
Red Alert Politics: A study from Harvard examined the effects of minimum wage hikes in California — and it’s sobering news for the #FightFor15 crowd. The study found restaurants are more likely to close when the minimum wage is increased.
In particular, restaurants scoring a 3.5 rating on Yelp are 14 percent more likely to close for each $1 increase in the minimum wage. The study found that the lower the Yelp score, the more impacted restaurants were to the minimum wage increase. Overall, they found a “4 to 10 percent” increase in the likelihood of closure for every $1 increase.
“We find suggestive evidence that a higher minimum wage leads to overall increases in restaurant exit rates – depending on the specification, we find that a $1 increase in the minimum wage leads to approximately a 4 to 10 percent increase in the likelihood of exit,” Dara Lee Luca and Michael Luca wrote in the study. More