Tips allow restaurants to pay sewers lower wages. As more sewers are hired, each serves fewer meals and earns less in tips. As a result, restaurants must pay a higher wage. This gives them monopsony power over wages. Over some range, a higher minimum wage should increase employment. Empirically, we found the full ''reverse C'' monopsony pattern of employment for restaurants, with employment first going up and then down as the minimum wage is increased.
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London Sch Econ, Ctr Econ Performance, London WC2A 2AE, EnglandLondon Sch Econ, Ctr Econ Performance, London WC2A 2AE, England
Draca, Mirko
Machin, Stephen
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London Sch Econ, Ctr Econ Performance, London WC2A 2AE, England
UCL, Dept Econ, London WC1E 6BT, England
Inst Study Labor IZA, Bonn, GermanyLondon Sch Econ, Ctr Econ Performance, London WC2A 2AE, England
Machin, Stephen
Van Reenen, John
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London Sch Econ, Ctr Econ Performance, London WC2A 2AE, England
Natl Bur Econ Res, Ctr Econ & Policy Res, Cambridge, MA 02138 USA
IZA, Brussels, BelgiumLondon Sch Econ, Ctr Econ Performance, London WC2A 2AE, England