Minimum Wage Increases and Employer Performance: Role of Employer Heterogeneity

While there has been extensive research on the impact of minimum wages on employment and wages, there has been little on the impact on firm performance, prices, and quality. Exploiting the staggered changes in minimum wages in the US over 2000 to 2008 and using comprehensive data on the hotel industry, we find that doubling minimum wage reduces average hotel revenues by 6% per year and occupancy rates by 3.1%. This is robust to comparing hotels across contiguous counties, and to including state-specific trends. Price responses vary by hotel quality and organizational form. We also find quality downgrades and long-run adjustments via lower entry rates in response to minimum wage increases. The negative effects of minimum wages are in states without right-to-work regulation; suggesting the need for a more comprehensive approach to labor market regulations.

Agarwal, Sumit and Ayyagari, Meghana and Kosova, Renata, Minimum Wage Increases and Employer Performance (April 14, 2020). Available at SSRN: https://ssrn.com/abstract=3575689 or http://dx.doi.org/10.2139/ssrn.3575689