Meidner Lives!

Rudolf Meidner, one of the unsung economics heroes of the last century, argued for solidarity wages on several grounds, one of which is that low wages subsidize less efficient firms.*  Bring the bottom up, he said, and you will change the mix of enterprises and boost overall productivity.  It’s just a hypothesis, but here’s a bit of recent evidence from a pair of researchers:

We study the impact of the minimum wage on firm exit in the restaurant industry, exploiting recent changes in the minimum wage at the city level. We find that the impact of the minimum wage depends on whether a restaurant was already close to the margin of exit. Restaurants with lower ratings are closer to the margin of exit on average, and are disproportionately driven out of business by increases to the minimum wage. Our point estimates suggest that a one dollar increase in the minimum wage leads to a 10 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating on Yelp), but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale).

*Unsung in English.  What are they singing these days in Sweden?