Do Increased Minimum Wages Matter to Consumers?

New Study Finds Increased Wages Contribute to Better Customer Perceptions of Service Quality

Key Takeaways: 

• Higher minimum wages contribute to customer perceptions of higher quality of service.
• Increased minimum wages contribute to better employee performance.
• Locally-owned and controlled restaurants demonstrated these improved customer perceptions of service and employee performance.  

CATONSVILLE, MD, October 7, 2021 – The current gap between workforce supply and employer demand has led to a rise in wages, particularly among low-skilled positions in the service and hospitality industries. Competition for workers is increasing as the busy holiday season approaches. 

While raising minimum wages may be critical to attracting workers, it also poses another question. Does an increase in minimum wage improve consumer perceptions of service? And therefore, might higher minimum wages be beneficial to employees and customers, and ultimately to employers?

A new study of restaurants has found there is an improvement in perceived service quality. Higher minimum wages have contributed to a decrease in negative feedback the restaurants receive on the levels of courtesy and friendliness of restaurant employees.

The study, “The Impact of Increase in Minimum Wages on Consumer Perceptions of Service: A Transformer Model of Online Restaurant Reviews,” is authored by Dinesh Puranam of the University of Southern California, Vrinda Kadiyali of Cornell University, and Vishal Narayan of National University of Singapore.

The researchers analyzed data from 97,242 online reviews of 1,752 restaurants over a two-year period. The sampling of the research was concentrated in the County of Santa Clara, Calif.

“Our primary question was to determine whether a minimum wage increase leads to an increase or decrease in consumer opinions of service quality,” say Puranam. “We found that generally, when workers are paid more, they deliver better service. Customers respond by reducing negative feedback on restaurant review platforms.”

The study authors compared the effect of higher minimum wages in chain and independent restaurants.

“Locally-based independent restaurants have a greater ability to monitor and manage individual employee performance when compared to national chains, where process-driven cultures allow little room for local variance in quality,” says Kadiyali. 

“Our research suggests that independents’ can improve their success by providing a better customer experience through improved service,” says Narayan.

Link to Study.

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