Working Paper: CEPR ID: DP11097
Authors: Daniel Aaronson; Eric French; Isaac Sorkin
Abstract: We document three new findings about the industry-level response to minimum wage hikes. First, restaurant exit and entry both rise following a hike. Second, the rise in entry and exit is concentrated in chains. Third, there is no change in employment among continuing restaurants. We develop a model of industry dynamics based on putty-clay technology and show that it is consistent with these findings. In the model, continuing restaurants cannot change employment, and thus industry-level adjustment occurs through exit of labor-intensive restaurants and entry of capital-intensive ones. We show these three findings are inconsistent with other models of industry dynamics.
Keywords: employment; industry dynamics; minimum wage; puttyclay
JEL Codes: E24; J36; L11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| minimum wage increase (J38) | exit rates of limited service restaurants (L81) |
| minimum wage increase (J38) | entry rates of limited service restaurants (L81) |
| minimum wage increase (J38) | employment levels among continuing restaurants (J63) |
| exit rates of limited service restaurants (L81) | entry rates of limited service restaurants (L81) |
| disemployment effect grows over time (J65) | replacement by capital-intensive entrants (P12) |