Does a One-Size-Fits-All Minimum Wage Cause Financial Stress for Small Businesses?

68 Pages Posted: 9 Dec 2019

See all articles by Sudheer Chava

Sudheer Chava

Georgia Institute of Technology - Scheller College of Business

Alexander Oettl

Georgia Institute of Technology - Strategic Management Area

Manpreet Singh

Georgia Institute of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: December 2019

Abstract

Do increases in federal minimum wage impact the financial health of small businesses? Using intertemporal variation in whether a state’s minimum wage is bound by the federal rate and credit-score data for approximately 15.2 million establishments for the period 1989–2013, we find that increases in the federal minimum wage worsen the financial health of small businesses in the affected states. Small, young, labor-intensive, minimum-wage sensitive establishments located in the states bound to the federal minimum wage and those located in competitive and low-income areas experience higher financial stress. Increases in the minimum wage also lead to lower bank credit, higher loan defaults, lower employment, a lower entry and a higher exit rate for small businesses. The results are robust to using nearest-neighbor matching and geographic regression discontinuity design. Our results document some potential costs of a one-size-fits-all nationwide minimum wage, and we highlight how it can have an adverse effect on the financial health of some small businesses.

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Suggested Citation

Chava, Sudheer and Oettl, Alexander and Singh, Manpreet, Does a One-Size-Fits-All Minimum Wage Cause Financial Stress for Small Businesses? (December 2019). NBER Working Paper No. w26523. Available at SSRN: https://ssrn.com/abstract=3500641

Sudheer Chava (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

HOME PAGE: http://www.prism.gatech.edu/~schava6/

Alexander Oettl

Georgia Institute of Technology - Strategic Management Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Manpreet Singh

Georgia Institute of Technology ( email )

800 W Peachtree St NW
Room 4162
Atlanta, GA 30308
United States
+14043855330 (Phone)

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

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