Higher Minimum Wages Reduce Capital Expenditures
45 Pages Posted: 10 Feb 2017 Last revised: 31 May 2022
Date Written: March 18, 2022
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: Suggested Citation