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New minimum wage laws coupled with slowing economy is becoming death knell for restaurants

New minimum wage laws coupled with slowing economy is becoming death knell for restaurants

In a new study from Harvard University on April 18, consequences from the plethora of new minimum wage laws are showing concrete effects for restaurants in relation to the amount of higher wages these businesses must provide to employees.

In fact according to data compiled in the San Francisco region, for every additional dollar restaurant owners had to pay each employee per hour resulted in a 4-10% increased chance that the business would have to shut its doors.

A ‘shocking’ discovery was made when a pair of researchers at Harvard Business School decided to analyze the impact of higher minimum wages in San Francisco on restaurant failures…hint:¬† they went up.

Entitled “Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit“, this latest study on the devastating consequences of minimum wage was conducted by Dara Lee Luca and Michael Luca and concluded that each $1 increase in the minimum wage results in a roughly 4-10% increase in the likelihood of a restaurant going out of business.

In this paper, we investigate the impact of the minimum wage on restaurant closures using data from the San Francisco Bay Area. We find suggestive evidence that an increase in the minimum wage leads to an overall increase in the rate of exit.

This paper presents several new findings. First, we provide suggestive evidence that higher minimum wage 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, although statistical significance falls with the inclusion of time-varying county-level characteristics and city-specific time trends. This is qualitatively consistent but smaller than what Aaronson et al. (forthcoming) find; they show that a 10 percent raise in the minimum wage increases firm exit by approximately 24 percent from a base of 5.7 percent. Differences in sample and specifications may account for the differences between our study and theirs. – Zerohedge

However the movement among states to raise the minimum wage is not the only component leading to a rise in restaurant closures.  A vastly slowing economy coupled with consumers being tapped out because of rising costs and debts have resulted in sales falling for 11 of the last 12 months in the industry.

Nearly every single real data point (discounting the Fed and governments manipulated reporting) shows that not only are we likely in recession, but the primary component that runs the U.S. economy (consumer spending) is also vastly in decline.  And when you add in the fact that state governments are ceding to whims of protesters demanding higher wages for no increase in productivity, the landscape of the restaurant industry will increasingly disappear on street corners across the country.

Kenneth Schortgen Jr is a writer for The Daily Economist, Secretsofthefed.com, Roguemoney.net, and Viral Liberty, and hosts the popular youtube podcast on Mondays, Wednesdays and Fridays. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.


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