The Local Aggregate Effects of Minimum Wage Increases

Abstract

Using variation in minimum wages across cities and controlling for differences in business‐cycle factors and long‐run local economic trends, we find that following minimum wage increases, both, prices and nominal spending rise modestly. These gains are larger for certain subcategories of goods such as food away from home and in locations where low‐wage workers account for a larger share of employment. Further, minimum wage increases are associated with reduced total debt among households with low credit scores, higher auto debt, and increased access to credit.

Who Pays for the Minimum Wage?

“…We observe individual worker-level information for the subset of firms which are in the Hungarian Structure of Earnings Survey (SES). 7 The SES collects detailed information on worker-level wages, job characteristics, and demographic characteristics. For small firms in the survey (with 5 to 20 employees) we observe all workers, while for larger firms (more than 20 employees) we only observe a random sample of workers.…”

The effect of minimum wages on consumption in Canada

“…Since the seminal paper of Stigler (1946), researchers and policymakers have long discussed the general effects of changes in the minimum wage on various macroeconomic aggregates. Studies have focused on the effects of minimum wage on other wages (Brown, 1999; Campolieti, 2015; Grossman, 1983; Neumark and Wascher, 2004; Rama, 2001), wage inequality (Engbom and Moser, 2018; Fortin and Lemieux, 2015), poverty (Addison and Blackburn, 1999; Campolieti et al, 2012; Neumark and Wascher, 2002), firms’ profits (Draca et al, 2011; Mason et al, 2006; Riley and Rosazza-Bondibene, 2015), work hours (Dube et al, 2010; Hirsch et al, 2015; Michl, 2000; Zavodny, 2000) and prices (Arpaia et al, 2017; Campolieti, 2018; Cooper et al, 2020; Lemos, 2008).…”

“…For example, to analyse the consumption effect at micro level, Aaronson et al (2012) used the panel data method and Dautović et al (2019) used two-stage least square estimation for panel data. At the macro level, Arpaia et al (2017) employed ordinary least squares regression for income quantiles and Cooper et al (2020) used an ordinary least squares regression with distributed lags. A general overview of these results suggests a positive consumption effect arising from increases in the minimum wage.…”

UQ eSpace

“…This suggests a palpable loosening of these households' budgets. On the other hand, there do appear to be modest price increases that are more regressive than average consumption taxes, reducing the net gain to lowwage workers (Cooper et al, 2019;MaCurdy, 2015).…”

“…Minimum wage hikes appear to increase poor households' access to traditional credit channels, reducing their use of predatory services like payday loans (Dettling & Hsu, 2017), and increasing their borrowing and consumption (Aaronson, Agarwal, & French, 2012;Cooper, Luengo-Prado, & Parker, 2019). There is also evidence that these higher wages reduce recidivism in income-related crime categories, such as theft and drug selling (Agan & Makowsky, 2018;Yang, 2017).…”