Consumer Loan Response to Permanent Labor Income Shocks: Evidence from a Major Minimum Wage Increase

32 Pages Posted: 8 May 2017

See all articles by Ibrahim Guney

Ibrahim Guney

Government of the Republic of Turkey - Central Bank of the Republic of Turkey

Yavuz Hacihasanoglu

Government of the Republic of Turkey - Central Bank of the Republic of Turkey

Semih Tumen

TED University; IZA Institute of Labor Economics

Abstract

We investigate the impact of a substantial minimum wage increase, which became effective in January 2016, on consumer loans in Turkey. Using bank-level data and designing an original identification strategy, we ask whether the loans provided by banks with a historically high share of low-wage loan customers have increased relative to those provided by banks with a historically low share of low-wage loan customers after January 2016. Our results suggest that consumer loan flows have displayed a limited but statistically and economically meaningful increase following the minimum wage hike. This increase mostly comes from the increase in long-term general-purpose loans. Vehicle loans have also increased, while there is no change in housing loans. In the overall, the minimum wage hike has generated a moderate and transitory increase in the flow of consumer loans extended to low-wage earners in Turkey – perhaps due to delayed consumption effect. Consumption of durables, which can further increase household borrowing capacity through collateralized debt channel, has only slightly and temporarily increased. The underlying long-term trends in the stock of consumer loans have hardly changed.

Keywords: consumer loans, labor income shocks, minimum wages, tripledifference

JEL Classification: D14, E24, G21, J31

Suggested Citation

Guney, Ibrahim and Hacihasanoglu, Yavuz and Tumen, Semih, Consumer Loan Response to Permanent Labor Income Shocks: Evidence from a Major Minimum Wage Increase. IZA Discussion Paper No. 10751, Available at SSRN: https://ssrn.com/abstract=2964160 or http://dx.doi.org/10.2139/ssrn.2964160

Ibrahim Guney (Contact Author)

Government of the Republic of Turkey - Central Bank of the Republic of Turkey ( email )

Istiklal Cad. 10 Ulus
06100 Ankara, Ankara 06050
Turkey

Yavuz Hacihasanoglu

Government of the Republic of Turkey - Central Bank of the Republic of Turkey ( email )

Istiklal Cad. 10 Ulus
06100 Ankara, Ankara 06050
Turkey

Semih Tumen

TED University ( email )

Ziya Gokalp Bulvari No: 48
Kolej Çankaya, Ankara 06420
Turkey

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
36
Abstract Views
376
PlumX Metrics