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The Spending and Debt Response to Minimum Wage HikesDaniel AaronsonFederal Reserve Bank of Chicago Sumit AgarwalNational University of Singapore Eric FrenchFederal Reserve Bank of Chicago May 29, 2008 FRB of Chicago Working Paper No. 2007-23 Abstract: 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.
Number of Pages in PDF File: 65 Keywords: consumption, minimum wage, debt, liquidity constraint, durables JEL Classification: D1'8 J3, E21 working papers seriesDate posted: June 13, 2008 ; Last revised: February 12, 2011Suggested CitationContact Information
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