Working Paper: NBER ID: w28966
Authors: Christopher Esposito; Edward E. Leamer; Jerry Nickelsburg
Abstract: In the restaurant industry, the incidence of an increase in the minimum wage may fall on restaurant owners, customers, landlords, and/or employees. We analyze the first two in this study, with implications for the incidence borne by landlords and employees. We exploit a geographical discontinuity in Los Angeles County, where in 2015 the City of Los Angeles passed a minimum wage law and in 2016 the State of California passed a different minimum wage law. This created two minimum wage schedules in the county that remained unequal for over five years. Using a novel data set from a multi-year price survey, our analysis shows that the incidence of Los Angeles City’s higher minimum wage fell on customers in high-income neighborhoods, and on landlords and restaurant owners in low-income neighborhoods. We further show that the mix of responses at restaurants subject to the LA City minimum wage, including price increases, menu changes, and restaurant closures, was affected by proximity to restaurants subject to the lower California State minimum wage. The effect of neighborhood income levels and distance to lower-wage competition has important implications for designing minimum wage policies.
Keywords: No keywords provided
JEL Codes: J2; J3; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher minimum wage in Los Angeles City (J38) | Significant price increases at restaurants in high-income neighborhoods (P22) |
| Restaurants located at least a mile away from state wage competition (J38) | Able to pass wage costs onto consumers through price hikes (J39) |
| Minimum wage (J38) | Altered menu items and closures in low-income neighborhoods (R23) |
| Higher minimum wage (J38) | Reduction in land rents for landlords (Q15) |
| Minimum wage (J38) | Overall labor market equilibrium affected (F66) |