Does a minimum wage increase endanger restaurant jobs? Examining the role of franchising

Abstract

This study examined the effect of federal minimum wage increases on the U.S. restaurant industry. Based on the competitive labor market perspective, this study expected that minimum wage increases would negatively (positively) influence restaurant employment (compensation), while franchising would positively moderate the minimum wage-employment (minimum wage-compensation) relationship. The results of the analysis showed that minimum wage increases negatively influence employment, while franchising positively moderates the adverse effect of minimum wage increases on restaurant employment. This study also revealed that minimum wage increases positively influence per employee compensation, but franchising does not significantly moderate the relationship. This study suggested that franchising provides a buffer that absorbs the adverse effects of minimum wage increases on restaurant employment. Conversely, franchise restaurants may face potential service quality issues because franchise firms seem to strategically adjust full-time employees to part-time workers to address minimum wage increases.