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The Impact of Increase in Minimum Wages on Consumer Perceptions of Service: A Transformer Model of Online Restaurant Reviews

Author

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  • Dinesh Puranam

    (Marshall School of Business, University of Southern California, Los Angeles, California 90089)

  • Vrinda Kadiyali

    (Johnson Graduate School of Management, Cornell University, Ithaca, New York 14850)

  • Vishal Narayan

    (NUS Business School, National University of Singapore, Singapore 119245)

Abstract

We study the impact of a mandated increase in minimum wages on consumer perceptions of multiple dimensions of service quality in the restaurant industry. When faced with higher minimum wages, firms might reduce the number of employees, resulting in poorer consumer service. Alternatively, higher-paid workers might be more motivated to improve consumer service. Using a combination of human annotation and several transformer models, we estimate the incidence of discussion of several service quality attributes (and their valence) in a textual data set of 97,242 online reviews of 1,752 restaurants posted over two years. We exploit a natural experiment in the County of Santa Clara, California, wherein only the city of San Jose legislated a 25% minimum wage increase in 2013. By comparing restaurant reviews in San Jose with those of synthetic controls, we find an improvement in the perceived service quality of San Jose restaurants. Specifically, we find reduced negative discussion of the courtesy and friendliness of workers. This decrease is present in independent restaurants and not in chains. This finding appears to be consistent with agency theory–based predictions of greater incentives to improve service in independent restaurants. We discuss alternative mechanisms for our results. We also discuss implications for consumers, restaurants, and policy makers.

Suggested Citation

  • Dinesh Puranam & Vrinda Kadiyali & Vishal Narayan, 2021. "The Impact of Increase in Minimum Wages on Consumer Perceptions of Service: A Transformer Model of Online Restaurant Reviews," Marketing Science, INFORMS, vol. 40(5), pages 985-1004, September.
    • Handle: RePEc:inm:ormksc:v:40:y:2021:i:5:p:985-1004
    DOI: 10.1287/mksc.2021.1294
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    1. Uttara Ananthakrishnan & Davide Proserpio & Siddhartha Sharma, 2023. "I Hear You: Does Quality Improve with Customer Voice?," Marketing Science, INFORMS, vol. 42(6), pages 1143-1161, November.

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