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http://ssrn.com/abstract=1144222
 
 

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The Spending and Debt Response to Minimum Wage Hikes


Daniel Aaronson


Federal Reserve Bank of Chicago

Sumit Agarwal


National University of Singapore

Eric French


Federal Reserve Bank of Chicago; Department of Economics

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 series


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Date posted: June 13, 2008 ; Last revised: February 12, 2011

Suggested Citation

Aaronson, Daniel and Agarwal, Sumit and French, Eric, The Spending and Debt Response to Minimum Wage Hikes (May 29, 2008). FRB of Chicago Working Paper No. 2007-23. Available at SSRN: http://ssrn.com/abstract=1144222 or http://dx.doi.org/10.2139/ssrn.1144222

Contact Information

Daniel Aaronson (Contact Author)
Federal Reserve Bank of Chicago ( email )
230 South LaSalle Street
Chicago, IL 60604-1413
United States
Sumit Agarwal
National University of Singapore ( email )
15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)
HOME PAGE: http://www.ushakrisna.com
Eric French
Federal Reserve Bank of Chicago ( email )
230 South LaSalle Street
Chicago, IL 60604-1413
United States
312-322-5322 (Phone)
312-322-5111 (Fax)
Department of Economics ( email )
Gower Street
London, WC1E 6BT
United Kingdom
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