For restaurant workers, especially kitchen staff who don’t receive tips, a boost in the minimum wage is usually welcome. But restaurant owners don’t always see it that way. They often argue that raising the price floor for labor can cause businesses running tight margins—as many restaurants do—to shutter. A new study from Harvard University in conjunction with Yelp found that while minimum-wage hikes can cause some restaurants to go out of businesses, that fate was much more likely for eateries that fail to please customers.
Dara Lee Luca, an economist at the Mathematica Policy Research, and Michael Luca, a professor at Harvard Business School, looked at over 35,000 restaurants in San Francisco and how they fared during the 21 minimum-wage hikes in localities in the Bay Area between 2008 and 2016. Using data from Yelp, some 2 million ratings, the researchers found an interesting relationship between restaurant’s star rating and restaurant closings.
The study is unique in two ways: First, it uses crowdsourced data, instead of government data, to quickly glean information about how the restaurant industry reacts to policy changes. Further, rating websites, such as Yelp, allow for proxies on restaurant quality and popularity.