Increasing minimum wage improves customer experience

Staff are not the only ones to benefit from hikes in the minimum wage – diners do too, according to research published in the journal Marketing Science.

The discussion around minimum wages has focused on how prices will go up leaving consumers worse off, explained Vrinda Kadiyali, professor of management at the Cornell SC Johnson College of Business. However, she found that “consumers are happier with the overall quality”. 

Kadiyali and her team mined data from 97,242 online reviews of restaurants in Santa Clara County in the US. In March 2013, the minimum wage in San Jose, California, rose from $8 to $10, while wages in the county’s other seven cities stayed the same. Reviews from the 12 months before and after the wage increase, posted on a popular online review site, were analysed. 

The researchers found that, compared to the other cities, negative comments and discussions on the friendliness of staff decreased in San Jose (inferring an improvement in service quality).

“[…] for a particular class of restaurants, consumers benefit from an increase in [minimum] wage because employees are motivated and owners are motivated to provide better service,” Kadiyali said.

This effect was also only seen in independent restaurants. There’s an “incentive effect” in those because they can control the quality more than the national chains, which have standardised approaches. “If you see a change in minimum wage, you can significantly affect the consumer experience,” Kadiyali said. 

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