The Spending and Debt Response to Minimum Wage Hikes (REVISED February, 2011)
Daniel Aaronson, Sumit Agarwal, Eric French
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.
