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American Economic Review: Vol. 102 No. 7 (December 2012)

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The Spending and Debt Response to Minimum Wage Hikes

Article Citation

Aaronson, Daniel, Sumit Agarwal, and Eric French. 2012. "The Spending and Debt Response to Minimum Wage Hikes." American Economic Review, 102(7): 3111-39.

DOI: 10.1257/aer.102.7.3111

Abstract

Immediately 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. (JEL D12, D14, D91, J38)

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Online Appendix (162.06 KB) | Download Data Set (547.78 MB)

Authors

Aaronson, Daniel (Federal Reserve Bank of Chicago)
Agarwal, Sumit (National U Singapore)
French, Eric (Federal Reserve Bank of Chicago)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
D14: Personal Finance
D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
J38: Wages, Compensation, and Labor Costs: Public Policy


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