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Assessing the main and spillover effects of Seattle's minimum wage on establishment decisions

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  • Dharmasankar, Sharada
  • Yoo, Hoyoung

Abstract

We use the introduction of Seattle's local minimum wage to investigate the geographic effects of highly-targeted, city-level minimum wages on establishment entry and exit decisions. We explicitly consider the spillover effects of Seattle's minimum wage on business entry and exit decisions in the surrounding areas, in addition to the main effect. We use an event study framework to estimate these effects on two low-wage industries: hospitality and retail. We find strong, statistically significant spillover effects on establishment entries at the census block level in the hospitality and retail sectors 1–2 years after Seattle's minimum wage is announced relative to establishment churn before the minimum wage announcement. The estimated spillover effects are positive, implying an increase in the number of establishments entering the areas surrounding Seattle after the announcement of the minimum wage. There is a corresponding decline in entries for both sectors in Seattle itself. Our findings on exits are inconclusive. Both spillover and main effects are more concentrated in retail. We estimate our effects using a novel data set containing a full census of establishments with precise locations for businesses in the state of Washington. Our findings suggest that spillover effects on neighboring areas should be considered to holistically assess the impacts of city-level minimum wages.

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  • Dharmasankar, Sharada & Yoo, Hoyoung, 2023. "Assessing the main and spillover effects of Seattle's minimum wage on establishment decisions," Regional Science and Urban Economics, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:regeco:v:99:y:2023:i:c:s016604622200103x
    DOI: 10.1016/j.regsciurbeco.2022.103865
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    More about this item

    Keywords

    Spillover effect; Citywide minimum wage; Seattle; Establishment entry;
    All these keywords.

    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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