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Study: Higher Minimum Wage Requirements Wiping Out Less-Trendy Restaurants

Once again, those persnickety laws of economics are getting in the way of social engineering.

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An article over at the Washington Examiner brings attention to the results of a recent study done by none other than Harvard Business School, one that reveals higher mandatory minimum wages do, indeed, exert a profoundly negative effect on the very businesses required to pay those earnings.

Specifically, the research examined the impact of San Francisco’s acutely high minimum wage on local restaurants. Although the federal minimum wage is $7.25, and California’s statewide minimum wage requirement is presently $10.50, San Francisco, in all of its social justice wisdom, requires the businesses there to pay a wage of no less than $13.00 an hour.

The result? More and more restaurants in the city are shuttering their doors because they simply cannot afford to pay the rate. What’s more, the restaurants being forced to close are not among the high-end establishments, but, rather, those with lower ratings.

According to the study’s authors, Dara Lee and Michael Luca, “The impact on exit is concentrated among lower quality restaurants, which are already closer to the margin of exit. This suggests that the ability of firms to adjust to minimum wage changes could differ depending on firm quality.”

As for the matter of the broad effect of the city’s high minimum wage, Lee and Luca say that it “increases overall exit rates among restaurants, where a $1 increase in the minimum wage leads to approximately a 4 to 10 percent increase in the likelihood of exit.”

Unsurprisingly, but somewhat ironically, higher-quality restaurants seem able to weather the minimum wage storm OK. The study found that five-star restaurants (as determined by the Yelp social media review platform) managed to successfully work around it, but those with three-and-a-half-star ratings were 14 percent more likely to go under when the minimum wage increased 10 percent above the state’s mandated minimum wage.

So the more marginal you are, the greater your chances you’ll be wiped out altogether.

Doesn’t sound very social justice-y, does it?

By Robert G. Yetman, Jr. Editor At Large

 

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