Do Minimum Wage Increases Benefit Intended Households? Evidence from the Performance of Residential Leases

46 Pages Posted: 21 Dec 2018 Last revised: 17 Feb 2019

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Brent W. Ambrose

Pennsylvania State University

Moussa Diop

University of Southern California

Multiple version iconThere are 2 versions of this paper

Date Written: February 15, 2019

Abstract

Prior studies debating the effects of changes to the minimum wage concentrate on impacts on household income and spending, or employment. We extend this debate by examining the impact of changes to the minimum wage on expenses associated with shelter, a previously unexplored area. Increases in state minimum wages significantly reduce the incidence of renters defaulting on their lease contracts by 1.29 percentage points over three months relative to similar renters that did not experience an increase in the minimum wage. This represents 25.7% fewer defaults post treatment in treated states. To put this in perspective, 1% increase in minimum wage translates into 2.6% decrease in rental default. This evidence is consistent with wage increases having an immediate impact on relaxing renter budget constraints. However, this effect slowly decreases over time as landlords react to wage increases by increasing rents. Our analysis is based on a unique dataset that tracks household rental payments.

Keywords: Minimum Wage Increase, Lease Defaults, Rental Market, Household Income

JEL Classification: G0, G13, G18, G28, R3, R31, R38

Suggested Citation

Agarwal, Sumit and Ambrose, Brent W. and Diop, Moussa, Do Minimum Wage Increases Benefit Intended Households? Evidence from the Performance of Residential Leases (February 15, 2019). Available at SSRN: https://ssrn.com/abstract=3283913 or http://dx.doi.org/10.2139/ssrn.3283913

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Brent W. Ambrose

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

Moussa Diop (Contact Author)

University of Southern California ( email )

Sol Price School of Public Policy
RGL 315
Los Angeles, CA 90089
United States
(213)821-0467 (Phone)

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