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.


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About ozidar

I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar.
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