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

Eric French, Daniel Aaronson and Isaac Sorkin

No 11097, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Employment; Industry dynamics; Minimum wage; Putty-clay (search for similar items in EconPapers)
JEL-codes: E24 L11 (search for similar items in EconPapers)
Date: 2016-02
New Economics Papers: this item is included in nep-lab and nep-mac
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Citations: View citations in EconPapers (23)

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