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

Posted: 17 Jul 2019

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Brent W. Ambrose

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Moussa Diop

University of Southern California

Multiple version iconThere are 2 versions of this paper

Date Written: 2019-07-10

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 who did not experience an increase in the minimum wage. This represents 25.7% fewer defaults post treatment in treated states. To put this into perspective, a 1% increase in minimum wage translates into a 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 data set 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 (2019-07-10). FRB of Philadelphia Working Paper No. 19-28, Available at SSRN: https://ssrn.com/abstract=3417746 or http://dx.doi.org/10.21799/frbp.wp.2019.28

Sumit Agarwal (Contact Author)

National University of Singapore ( email )

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Singapore, 117592
Singapore
8118 9025 (Phone)

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

Brent W. Ambrose

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Moussa Diop

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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