"Our analysis proceeds in three stages. First, we provide evidence that lower quality
businesses [as measured by Yelp rating] are, on average, closer to the margin of exit and fail at higher rates than higher quality
restaurants irrespective of the minimum wage level. A one-star increase in rating is associated
with more than a 50% decrease in the likelihood of going out of business. This qualitative
relationship holds both with and without restaurant effects.
"We then exploit the multiple city-level minimum wage changes in recent years across the
Bay Area to implement a difference-in-differences design to investigate the effects of the
minimum wage. 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,
although the estimate is only statistically significant in certain specifications.
"Next, we present robust evidence that the impact of the minimum wage varies with the
rating of the business. Our point estimates suggest that a $1 increase in the minimum wage leads
to an approximate 14 percent increase in the likelihood of exit for the median 3.5-star restaurant
but the impact falls to zero for five-star restaurants. These effects are robust to a number of
different specifications, including controlling for time-varying county characteristics that may
influence both minimum wage policies and restaurant demand, city-specific time trends to
account for preexisting trends, as well as county-year fixed effects to control for spatial
heterogeneity in exit trends."
"We then exploit the multiple city-level minimum wage changes in recent years across the Bay Area to implement a difference-in-differences design to investigate the effects of the minimum wage. 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, although the estimate is only statistically significant in certain specifications.
"Next, we present robust evidence that the impact of the minimum wage varies with the rating of the business. Our point estimates suggest that a $1 increase in the minimum wage leads to an approximate 14 percent increase in the likelihood of exit for the median 3.5-star restaurant but the impact falls to zero for five-star restaurants. These effects are robust to a number of different specifications, including controlling for time-varying county characteristics that may influence both minimum wage policies and restaurant demand, city-specific time trends to account for preexisting trends, as well as county-year fixed effects to control for spatial heterogeneity in exit trends."