Journal
INTERNATIONAL ECONOMIC REVIEW
Volume 59, Issue 1, Pages 51-84Publisher
WILEY
DOI: 10.1111/iere.12262
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Funding
- ESRC [ES/M010147/1, ES/P001831/1] Funding Source: UKRI
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We document two new findings about the industry-level response to minimum wage hikes. First, restaurant exit and entry both rise following a hike. Second, there is no change in employment among continuing restaurants. We develop a model of industry dynamics based on putty-clay technology that is consistent with these findings. In the model, continuing restaurants cannot change employment, and thus industry-level adjustment occurs gradually through exit of labor-intensive restaurants and entry of capital-intensive restaurants. Interestingly, the putty-clay model matches the small estimated short-run disemployment effect of the minimum wage found in other studies, but produces a larger long-run disemployment effect.
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