Can a Citywide Minimum Wage Be an Effective Policy Tool? Evidence from San Francisco

Abstract

We provide here the first study of the economic impacts of a citywide minimum wage policy - San Francisco's adoption of a minimum wage of $8.50 in early 2004. To estimate the effects of this policy we surveyed and compared medium and small restaurants in San Francisco and in nearby East Bay cities, before and after the new policy. Employers with fewer than ten employees were phased into the policy over a two-year period, creating an additional dimension of comparison. We find that the policy increased pay significantly at affected restaurants and compressed the wage distribution among restaurant workers. We do not detect any employment loss among affected restaurants; this finding is stable across alternative control groups and specifications, including type of restaurant, and location in a tourist zone or area with large immigrant concentrations. On outcomes other than employment, we find heterogeneous responses between full-service and limited-service restaurants. Limited-service restaurants increased prices and employed more full-time workers, while job tenure increased among their workers. We do not detect these effects among full-service restaurants; they did, however, increase their use of tipped workers.

Keywords: Minimum Wage, Restaurant Industry

JEL Classification: J38, J63