Abstract: Cleanliness is next to godliness or minimum wage? Effects of changes in real minimum wage on food establishment health violation scores in Seattle (6th Biennial Conference of the American Society of Health Economists)

Abstract: Cleanliness is next to godliness or minimum wage? Effects of changes in real minimum wage on food establishment health violation scores in Seattle (6th Biennial Conference of the American Society of Health Economists)

Cleanliness is next to godliness or minimum wage? Effects of changes in real minimum wage on food establishment health violation scores in Seattle

Tuesday, June 14, 2016: 1:35 PM

G50 (Huntsman Hall)

Author(s): Srikant Devaraj

Discussant: Erik Nesson

The economic impact of increase in minimum wage is widely studied, yet, the public health impact of increasing minimum wage remains an unexplored area of study. Facing increasing real minimum wage, restaurants could lay off staff and/or cut their hours; resulting in higher job demands on the continuing staff. These increased job demands could lower hygiene levels in the food establishments may not exacerbate to levels where health authorities close down the restaurant; increase in less severe hygiene violations has implications for public health. A significant labor force earning minimum wage is employed in the restaurant industry, and increase in real minimum wages may directly affect hygiene at food service establishments. There are 935,000 restaurants in the US generating $537 billion in sales annually, and according to a 2012 report by the Bureau of Labor Statistics, 1.54 million workers (or, 40% of the minimum wage workers in the US) are employed in restaurant and food services industry and earn income at or below the federal minimum wage of $7.25. According to the Center for Science in the Public Interest, between 2002 and 2011, 1,600 food poisoning outbreaks in restaurants affected 28,000 people.

To inform the empirical model, we develop a theoretical model on profit-maximizing food establishments that optimize hygiene violations when faced with increase in minimum wage. Higher critical violation scores have significantly negative effects (e.g., risk of closure and decreased demand/reputation), and cutting back on some services like those with non-critical hygiene violation scores could save on costs without affecting sales or the risk of closure). The theoretical model indicates that food establishments would realize decreasing hygiene quality with rising minimum wages. As an identification strategy we use exogenous raises in real minimum wage in Seattle and use year-to-year difference as predictor. During 2010, 2011, 2012, and 2013 the State of Washington raised minimum wage to $8.55, $8.67, $9.04, and $9.19, respectively. We use the panel data of hygiene violation scores of 4,749 food establishments in Seattle because Washington state is one among four states that require all employers to pay their workers the state’s full minimum wage before tips.

Consistent with our theoretical model, and with first-difference and other fixed effects alternate specifications, we find that for $0.10 increase in real minimum wage, total hygiene violation score increases between 3.35 and 8.99 percent. We also find suggestive evidence of increase in red violation score (more severe violations) between 0.71 and 4.24 percent and a statistically significant increase in blue violations score (less severe violations) between 2.97 and 6.49 percent. Using a difference-in-difference model, with restaurants in Seattle as treated group and food establishments in New York City as the control group, we find that an increase in real minimum wage significantly increases the total violations. Increase in real minimum wage could have consequences for public health, and is an important criterion to consider for food establishment owners, its employees, and policy makers.