Does an increase in the minimum wage decrease employment?

It looks like it, yes. At least according to a study published on April 11 titled Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit. Read the whole thing, but here’s the best quote from the abstract:

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).

(This study used data from Yelp, such as the star rating and whether or not a restaurant is indicated as closed, to determine if the recent minimum wage increases in the San Francisco Bay Area have caused any restaurants to close. The study mentions how expensive a restaurant is to dine at, however they appear to base most of their analysis on the star rating and don’t appear to look at the cost, at least as far as I can see. I mostly skimmed the paper to make sure that they supported their assertions.)

The authors of this study assert that higher-rated restaurants don’t appear to be affected by increases in minimum wage; however, lower-rated restaurants can have their probability of closing increased by up to 14% due to a minimum wage increase.

So what does that mean?

I feel comfortable inferring that higher-rated restaurants will *generally* be more expensive to eat at than lower-rated restaurants,  and I don’t think that’s a terribly controversial inference. Less-expensive restaurants are also likely to pay their workers less, as well.

What this all adds up to is that increases in minimum wage are likely to result in lower-paid workers losing their jobs. Not only that, as pointed out in this article, but those lower-paid workers are likely to be racial minorities, as well, which means a minimum wage increase will likely hit the black and Hispanic communities with a negative effect at a rate disproportionate to their share of the total population.

All this, unfortunately, is completely predictable. Money doesn’t grow on trees, after all. (Or does it?) Simply mandating that workers be paid more doesn’t create the conditions that are necessary for a business to be able to support the higher wages.