Higher Minimum Wages Reduce Capital Expenditures

52 Pages Posted: 10 Feb 2017 Last revised: 17 Dec 2021

See all articles by Matthew Gustafson

Matthew Gustafson

Pennsylvania State University - Smeal College of Business

Jason D. Kotter

Brigham Young University - Department of Finance

Date Written: December 16, 2021

Abstract

Using cross-state and intertemporal variation in whether a state’s minimum wage is bound by the federal minimum wage, we provide evidence that minimum wage increases lead U.S. public firms in minimum wage sensitive industries (i.e., retail, restaurant, and entertainment) to cut capital expenditures. These effects are concentrated 1-2 years after the law goes into effect. Prior to the minimum wage increase, investment trends are similar across minimum wage sensitive firms in bound versus unbound states and we find little evidence that minimum wage changes affect U.S. public firm investment outside of these industries.

Keywords: minimum wage, investment, capital expenditures

JEL Classification: G31, G32, G38, J38

Suggested Citation

Gustafson, Matthew and Kotter, Jason D., Higher Minimum Wages Reduce Capital Expenditures (December 16, 2021). Available at SSRN: https://ssrn.com/abstract=2914598 or http://dx.doi.org/10.2139/ssrn.2914598

Matthew Gustafson

Pennsylvania State University - Smeal College of Business ( email )

East Park Avenue
University Park, PA 16802
United States

Jason D. Kotter (Contact Author)

Brigham Young University - Department of Finance ( email )

United States

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