Area: Finance

Committee Members: Dr. Sudheer Chava (Chair), Dr. Narayanan Jayaraman, Dr. Manpreet Singh, Dr. Suzanne Lee, Dr. Yafei Zhang (University of Central Florida)

Title: Adapting to Change: The Impact of Environmental and Labor Market Shocks on Small Businesses in the United States.

(Essays on Extreme Temperatures, Localized Minimum Wage, and Small Businesses)

Dissertation Overview:

Small businesses are essential to the U.S. economic landscape, representing over 90% of all enterprises and contributing nearly half of the non-farm gross domestic product, as reported by the Bureau of Labor Statistics (BLS). This dissertation explores the impacts on small businesses in the face of varied challenges, including extreme temperature events, and fluctuations in minimum wage. These topics are crucial for understanding how small businesses navigate economic uncertainties and regulatory changes, thereby maintaining their pivotal role in economic growth.

Essay 1: Impact of Extreme Temperatures on Small Businesses – Evidence from 15 Million Establishments in the U.S.

I analyze the economic impact of temperature shocks on 15 million small businesses. For unusual heat (cold) events, based on local historical temperatures, I find a decrease in sales by 7.2% (11.6%). Young, small, and discretionary merchants and those with higher sales volatility experience a stronger negative impact. Negative effects are amplified during weekends and prolonged cold spells. A one standard deviation increase in hot days (8.4 days) in a year raises the exit rate by 4.7%. Lost sales are not recovered on normal days, indicating a permanent loss rather than a delayed recovery. This decline further contributes to macroeconomic reductions in total income and employment levels. In contrast to the previous literature, my results show that heat and cold shocks can adversely impact small businesses. My results highlight the economic fragility of small businesses in the longer-term due to temporary, short-lived temperature shocks.

Essay 2: Local Minimum Wage and Small Businesses – Direct Shocks and Regional Spillovers 

This paper studies the effects of city- and county-level minimum wage increases on small business performance, focusing on both direct impacts and regional spillovers. Using a novel dataset covering 15 million small businesses from a major U.S. payment processor and a stacked event study design, I find that local minimum wage hikes lead to sharp and persistent declines in sales and customer traffic, with effects ranging from 5% to 10% for dining restaurants in directly impacted ZIP codes. These revenue losses attenuate with distance and extend up to 50 miles beyond policy boundaries, consistent with regional wage spillovers. Leveraging establishment-level variation, I find that newer, smaller, and more volatile businesses experience significantly larger revenue declines, as do those in highly competitive markets with limited pricing power. County-level wage data further confirm that dining-sector wages increase not only in policy-implementing counties but also in adjacent ones, particularly those with lower income, tighter labor markets, and lower marginal commuting costs. These results highlight the broader economic reach of local labor policies and the trade-offs between wage regulation and small business sustainability.