The Spending and Debt Response to Minimum Wage Hikes
65 Pages Posted: 13 Jun 2008 Last revised: 12 Feb 2011
Date Written: May 29, 2008
Following a minimum wage hike, household income rises on average by about $250 per quarter and spending by roughly $700 per quarter for households with minimum wage workers. Most of the spending response is caused by a small number of households who purchase vehicles. Furthermore, we find that the high spending levels are financed through increases in collateralized debt. Our results are consistent with a model where households can borrow against durables and face costs of adjusting their durables stock.
Keywords: consumption, minimum wage, debt, liquidity constraint, durables
JEL Classification: D1'8 J3, E21
Suggested Citation: Suggested Citation