Authors of a new Harvard Business School study say they have confirmed a theory argued over in restaurant circles and talk radio shows alike: The rate of Bay Area restaurant closures can be tied to the region’s rising minimum wage levels.

But the research adds a significant asterisk to the impact of wage hikes: The lower an area restaurant’s Yelp rating, the higher its risk of shutting down.

In an April 11 working paper titled “Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit,” researchers Dara Lee Luca and Michael Luca analyzed Yelp ratings to track some 35,000 restaurants in the Bay Area from 2008 to the end of 2016.

Given the pace and density of change, the Lucas say, the Bay Area made the ideal testing ground for their study. Eleven local cities — including Richmond, Santa Clara and Oakland — have raised their municipal minimum wage above the California state wage. Furthermore, Yelp is the leading user review site in the Bay Area, and Yelpers in San Francisco are particularly vigilant, registering opinions on 95 percent of restaurants identified by city records.

The Lucas looked at the effect of each wage-increase “event” on its city’s restaurants, then analyzed their findings to confirm that the restaurants’ price point was not the defining factor. (For example, San Francisco’s highest-rated restaurants include a fish-and-chips shop and a takeout stand selling Thai chicken and rice.)

For the average restaurant, with a 3.5 star rating on Yelp, the risk of closing goes up 14 percent for each $1 the minimum wage rises. “That’s a substantial effect,” researcher Michael Luca said. Restaurants with 2.5-star ratings were 25 percent more likely to close. For restaurants with 4.5 and 5 stars, the risk increase dropped to 0.

Back to Gallery As costs grow for restaurants, online ratings tied to... 5 1 of 5 Photo: Michael Short, Special to the Chroincle 2 of 5 Photo: Michael Short, Special to the Chroincle 3 of 5 Photo: Michael Short, Special to the Chroincle 4 of 5 Photo: John Storey, Special to the Chronicle 5 of 5 Photo: John Storey, Special to the Chronicle









According to data provided by Yelp, 8.7 percent of San Francisco restaurants that were open at the beginning of 2016 closed by the end of the year. The figures varied slightly across the Bay Area — for Berkeley, 9.8 percent, and for Mountain View, 6.9 percent. It’s not clear how those figures differ from, say, 2014, when the surge in voter-driven minimum-wage increases began.

Local entrepreneurs who have recently closed restaurants have mixed reactions to the study’s findings.

“Math is black and white, and restaurants operate in the gray,” said Gayle Pirie, chef-owner of Foreign Cinema in San Francisco, who recently closed Show Dogs, the sausage shop in the Tenderloin (Yelp rating: 3.5 stars) that she co-owned with John Clark. She clarified that, in fact, labor costs weren’t the primary factor in the couple’s decision to close Show Dogs. “We’ve been preparing for the minimum wage to rise for five or six years,” Pirie added.

Miles Palliser and business partner Ezra Berman, who recently closed Masonic Avenue’s Corner Store (3.5 stars) after five years in business, disagreed to a certain extent. “I think that the dramatic rise in minimum wage definitely affected us at the Corner Store and probably all three of our places in some fashion,” he said.

Yet, Palliser, who said he voted for San Francisco’s minimum-wage increases, says that rents, product costs and the rising cost of living were also significant factors. Though he and Berman still operate two bars, Lord George in South Beach and the San Francisco Athletic Club on Divisadero Street, they have tabled any thought of opening a new place until the market stabilizes.

Many local restaurateurs added that, in order to retain staff in a region with a skyrocketing cost of living, they already pay more than minimum wage. Among them is Sal Bednarz, who recently closed Victory Burger (3 stars) and Actual Café (3.5 stars) in Oakland after wages, rents, utilities and the cost of supplies went up. “I’m a local business that values doing business with other local business,” he said. “All the pressures I felt were felt by my suppliers. (The costs) multiply up the local supply chain.”

Most diners in the Bay Area can tell you: Rising minimum wages can be felt in menu prices. A 2015 study out of the UC Berkeley Institute for Labor Research and Employment found that after San Jose imposed a 25 percent increase in the city minimum wage in 2013, restaurants were able to absorb the cost by raising prices.

Restaurant owners, however, say they can’t raise prices indefinitely without alienating diners who expect to pay 2005 prices for burgers, burritos and even New York strip steaks.

Bednarz said it made sense to him that restaurants with lower Yelp ratings might be affected more. “If you’re talking about restaurants with average reputation, likely those are restaurants that are making compromises due to certain constraints they have, which are financial already,” he said. “I would guess that these restaurants are more vulnerable to changes in economic conditions.”

Michael Luca said that he and Dara Lee Luca embarked on the study to find new ways of looking at the effects of rising minimum wage on employment, already the subject of hundreds of studies. Most rely on data from the Bureau of Labor Statistics, and their results have varied between the positive and the negative.

The Lucas’ study is the first to use what they call Yelp’s “digital exhaust” to analyze the impact specifically on the restaurant industry.

The conservative national media have quickly picked up on the Harvard Business School study. Breitbart News, for instance, concluded that “it reveals that minimum wage policies often hurt those that they are intended to help.”

Given the fact that minimum wages in the Bay Area are only chasing after the rising cost of living — and not keeping up with rents — the Harvard study may not conclusively support that take.

In addition, the study did not take into account the effect of neighborhood and cuisine on Yelp rankings. Are restaurants in the Tenderloin generally ranked lower than ones in Pacific Heights? Are Yelpers more likely to be critical of restaurants serving Chinese, Mexican or Indian cuisine than those serving high-end Californian? And how does that translate into economic vulnerability?

What the study does prove is that in a highly competitive market like the Bay Area restaurant scene, the higher the cost of doing business, the more quickly restaurants are culled from the herd.

Michael Luca said he hopes his study will help identify at-risk restaurants after a minimum wage hike: “Which businesses are going to be the most affected, and what can we do about it?”

Jonathan Kauffman is a San Francisco Chronicle staff writer. Email: jkauffman@sfchronicle.com Twitter: @jonkauffman