The Impact of the Minimum Wage on Firm Exit: Evidence From Yelp Data
The minimum wage has recently reentered the forefront of policy discourse, with federal proposals ranging from leaving the minimum wage as it is or increasing it to $10.10 or even $15 per hour. While the federal minimum wage has remained stagnant since 2009, states-and more recently, cities-have increasingly set local minimum wages above the federal mandate of $7.25. In the San Francisco Bay Area alone, 21 local minimum-wage changes have occurred during the past decade. Our research investigates the impact of the minimum wage on restaurant closures, using data from the San Francisco Bay Area. We present two main findings. First, restaurants with the worst reputations, as proxied by their ratings on the review platform Yelp, are more likely to exit at any minimum wage level. Second, lower-rated restaurants are disproportionately affected by minimum-wage increases. In other words, the impact of the minimum wage on exit is more pronounced among lower-rated restaurants.