The Spending and Debt Response to Minimum Wage Hikes

Aaronson, Daniel; Agarwal, Sumit; French, Eric

doi:10.1257/aer.102.7.3111

Cited by 160 publications

(46 citation statements)

References 43 publications

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“…In particular, the fact that lenders increase access to traditional credit to low-income borrowers, and borrowers take up such low-cost credit and substitute away from payday borrowing after a minimum wage hike, suggests that credit constraints faced by low-income borrowers are at least partially relaxed when minimum wages increase. This view is consistent with recent work by Aaronson, Agarwal and French (2012) who found that their estimated consumption response to minimum wage hikes are consistent with a buffer stock model with widespread borrowing constraints. We expand upon their analyses by empirically documenting an expansion in credit supply and a reduction in payday borrowing.…”

Section: Introductionsupporting

confidence: 91%

“…First, that lenders send more offers, with better terms, to low-income borrowers when the minimum wage rises in their state. Second, we confirm the findings from previous research 2 (e.g., Aaronson, Agarwal and French 2012): borrowing increases among low skill workers after the minimum wage rises, and that borrowers do not default on these new loans in the medium term. We also find evidence of pay-down of existing debts.…”

Section: Introductionsupporting

confidence: 89%

“…The fact that the reduction in overall delinquency is driven by credit cards is not surprising; becoming current on a credit card only requires that the borrower make the minimum payment, typically around 2-4 percent of the total balance during this time period. Aaronson et al (2012) found that a $1 minimum wage hike increases household income by about $250 per quarter, which would cover the $90 minimum monthly credit card payment required for borrowers found in our sample (on average).…”

mentioning

confidence: 65%

“…The first empirical paper to establish a link between minimum wage policy and borrowing behavior was Aaronson, Agarwal and French (2012). They document a rise in consumption that is nearly three times the associated rise in income following minimum wage hikes.…”

Section: Conceptual Framework and Related Literaturementioning

confidence: 99%

“…To be precise, we identify minimum wage households as those whose household income is between 60 and 120 percent of the state minimum wage (for a single-person household) or 120 and 240 percent of the state minimum wage (for a multiple-person household), similar to Aaronson et al (2012).…”

Section: Data and Empirical Specificationmentioning

confidence: 99%

See 4 more Smart Citations

Minimum Wages and Consumer Credit: Impacts on Access to Credit and Traditional and High-Cost Borrowing

Dettling

Hsu

2017

FEDS

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Proponents of minimum wage legislation point to its potential to raise earnings and lift families out of poverty, while opponents argue that disemployment effects lead to net welfare losses. But these arguments typically ignore the possibility that minimum wage policy has spillover effects on other aspects of households' financial circumstances. This paper examines how state-level minimum wage changes affect the decisions of lenders and low-income borrowers. Using data derived from direct mailings of credit offers, debt recorded in credit reports, and survey-reported usage of alternative credit products, we broadly find that when minimum wages rise, access to credit expands for lower-income households, who in turn, use more traditional credit and less high-cost alternatives. Specifically, for each $1 increase in the minimum wage, lower-income households receive 7 percent more credit card offers, with higher limits and improved terms. Further, there is a drop in usage of high-cost borrowing: payday borrowing falls 40 percent. Finally, we find that borrowers are also better able to manage their debt: delinquency rates fall by 5 percent. Overall, our results suggest that minimum wage policy has positive spillover effects by relaxing borrowing constraints among lower income households.

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Section: Introductionsupporting

confidence: 91%

Section: Introductionsupporting

confidence: 89%

mentioning

confidence: 65%

Section: Conceptual Framework and Related Literaturementioning

confidence: 99%

Section: Data and Empirical Specificationmentioning

confidence: 99%

See 3 more Smart Citations

Minimum Wages and Consumer Credit: Impacts on Access to Credit and Traditional and High-Cost Borrowing

Dettling

Hsu

2017

FEDS

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Effects of the Minimum Wage on Infant Health

Wehby¹,

Dave²,

Kaestner³

2019

J Policy Anal Manage

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The minimum wage has increased in multiple states over the past three decades and it continues to be a controversial policy. Most prior research has examined the effect of the minimum wage on employment and wages. In this study, we examine the impact of the state minimum wage on infant health. Using data on the universe of births in the U.S. over 24 years, we find that an increase in the minimum wage is associated with a small, but statistically significant increase in birthweight driven primarily by increased fetal growth rate. Effects are largest for young, married mothers. In terms of mechanisms, we find no evidence that prenatal care use and smoking during pregnancy are channels through which minimum wage improves infant health.

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The Impact of SNAP Vehicle Asset Limits on Household Asset Allocation

Baek¹,

Raschke

2016

Southern Economic Journal

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Beginning in 2001, states were given the authority to formulate their own rules on how vehicles are counted toward the asset limit in the Supplemental Nutritional Assistance Program. We exploit differences in timing of the state vehicle asset policy changes to identify their effect on vehicle assets and debts, car ownership, liquid assets holdings, as well as non‐housing wealth. We estimate difference‐in‐differences and household fixed effects specifications and find that liberalizing vehicle asset rules increases vehicle assets of households with a high ex ante probability of program participation. Households also take on more debt to finance their vehicles. The increase in car value can be attributed primarily to less educated single parents who already owned a car before the policy change buying more expensive cars.

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The Spending and Debt Response to Minimum Wage Hikes

Cited by 160 publications

References 43 publications

Minimum Wages and Consumer Credit: Impacts on Access to Credit and Traditional and High-Cost Borrowing

Minimum Wages and Consumer Credit: Impacts on Access to Credit and Traditional and High-Cost Borrowing

Effects of the Minimum Wage on Infant Health

The Impact of SNAP Vehicle Asset Limits on Household Asset Allocation

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