The Impact of Increase in Minimum Wages on Consumer Perceptions of Service: A Transformer Model of Online Restaurant Reviews

Dinesh Puranam (), Vrinda Kadiyali () and Vishal Narayan ()
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Dinesh Puranam: Marshall School of Business, University of Southern California, Los Angeles, California 90089
Vrinda Kadiyali: Johnson Graduate School of Management, Cornell University, Ithaca, New York 14850
Vishal Narayan: NUS Business School, National University of Singapore, Singapore 119245

Marketing Science, 2021, vol. 40, issue 5, 985-1004

Abstract: We study the impact of a mandated increase in minimum wages on consumer perceptions of multiple dimensions of service quality in the restaurant industry. When faced with higher minimum wages, firms might reduce the number of employees, resulting in poorer consumer service. Alternatively, higher-paid workers might be more motivated to improve consumer service. Using a combination of human annotation and several transformer models, we estimate the incidence of discussion of several service quality attributes (and their valence) in a textual data set of 97,242 online reviews of 1,752 restaurants posted over two years. We exploit a natural experiment in the County of Santa Clara, California, wherein only the city of San Jose legislated a 25% minimum wage increase in 2013. By comparing restaurant reviews in San Jose with those of synthetic controls, we find an improvement in the perceived service quality of San Jose restaurants. Specifically, we find reduced negative discussion of the courtesy and friendliness of workers. This decrease is present in independent restaurants and not in chains. This finding appears to be consistent with agency theory–based predictions of greater incentives to improve service in independent restaurants. We discuss alternative mechanisms for our results. We also discuss implications for consumers, restaurants, and policy makers.

Keywords: service quality; minimum wages; text analysis; transformer models; natural experiments; agency theory (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:40:y:2021:i:5:p:985-1004

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