Boosting Growth: The Spending and Debt Responses to Minimum Wage Hikes

Aaronson, Daniel, Sumit Agarwal, and Eric French have a recent AER paper on the consumption patterns of households with minimum wage recipients following minimum wage increases.

Immediately following a minimum wage hike, household income rises on average by about $250 per quarter and spending by roughly $700 per quarter for households with minimum wage workers. Most of the spending response is caused by a small number of households who purchase vehicles. Furthermore, we find that the high spending levels are financed through increases in collateralized debt. Our results are consistent with a model where households can borrow against durables and face costs of adjusting their durables stock.