INDUSTRY DYNAMICS AND THE MINIMUM WAGE: A PUTTY‐CLAY APPROACH

By Daniel Aaronson, Eric French, Isaac Sorkin. 2018

156 citations recorded by the source corpus.

We document three new findings about the industry-level response to minimum wage hikes. First, restaurant exit and entry both rise following a hike. Second, the rise in entry and exit is concentrated in chains. Third, there is no change in employment among continuing restaurants. We develop a model of industry dynamics based on putty-clay technology and show that it is consistent with these findings. In the model, continuing restaurants cannot change employment, and thus industry-level adjustment occurs through exit of labor-intensive restaurants and entry of capital-intensive ones. We show these three findings are inconsistent with other models of industry dynamics.

Subfields: Economics and Econometrics, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/be7039b8b103d1f39e404b7423e776e4b6892440

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Citations in the corpus

Reallocation Effects of the Minimum Wage (2021, background): “3 Aaronson et al. (2018) make a related point and argue that a minimum wage policy induces less-efficient and more-labor-intensive firms to exit the market and more-efficient and more-capital-intensive firms to enter.”
Who Pays for the Minimum Wage? (2019, background): “However, these papers are criticized on the basis that they rely on small and temporary shocks for identification (Sorkin 2015, Aaronson et al. 2018) and study only short-term responses (Baker, Benjamin, and Stanger 1999), and so the lack of immediate responses might simply reflect adjustment costs…”