Wednesday, April 19, 2017

This is Why Your Favorite Restaurant Went Out of Business

A recent study conducted by researchers at Harvard Business School concluded that minimum wage laws increase the likelihood that non-elite restaurants will go out of business.

There should be no surprise here. Businesses at the margin are going to be dramatically hurt by increases in the minimum wage.

The study, which was conducted by the husband-and-wife team of Dara Lee Luca and Michael Luca, looked at data on “tens of thousands of restaurants in the San Francisco area.” They concluded that lower-rated restaurants are disproportionately more likely than four or five-star restaurants to go out of business as a result of minimum wage laws.

From the paper:
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. 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).
As Ludwig von Mises would say, this paper is simply economic history rather than proof but once you understand the theory it is economic history that profoundly demonstrates the destructive nature of minimum wage laws.


(ht Breitbart)


  1. Facts, schmacts - it's good politically! Moonbeam told us so!

  2. Wait, so you're saying that when the state dictates to businesses what they must pay for labor, that actually makes it HARDER for them to operate profitably?

    That can't be right...

  3. Cue smear campaign against authors of this study, to begin ---- now.

    1. As they're from Harvard, no smear campaign. It will just be ignored.

  4. This can't be right. Everybody knows that the price of labor and the demand for labor are directly related.

  5. What a surprise. You need a study to find out that top restaurants are not hurt by MW increases (= COST INCREASES) like low level restaurants at the margin. Who would have thought that... Being (back?) in the middle ages of economic thought.