Raise the Minimum Wage, Kill Companies and Jobs

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A number of cities across the country have enacted dramatic increases in the minimum wage. This has caused a great deal of harm, but on the plus side, it has enabled research on the economic consequences of mandating wages at higher than market rates.

This study was carried out under the auspices of the Harvard Business School by Dara Lee Luca and Michael Luca:

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. The evidence suggests that higher minimum wages increase overall exit rates for restaurants.

That is, going out of business.

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).

Most of the recent minimum wage increases have been much more than a dollar an hour.

There is nothing surprising about this conclusion. On the contrary, it is akin to a study finding that water flows downhill. But it will take more than facts to change liberals’ minds.