Discussion Paper Details

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Title: Industry Dynamics and the Minimum Wage: A Putty-Clay Approach

Author(s): Daniel Aaronson, Eric Baird French and Isaac Sorkin

Publication Date: February 2016

Keyword(s): employment, industry dynamics, minimum wage and putty-clay

Programme Area(s): Labour Economics and Public Economics

Abstract: 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.

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Bibliographic Reference

Aaronson, D, French, E and Sorkin, I. 2016. 'Industry Dynamics and the Minimum Wage: A Putty-Clay Approach'. London, Centre for Economic Policy Research.