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The Spending and Debt Response to Minimum Wage Hikes

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Author Info

  • Daniel Aaronson
  • Sumit Agarwal
  • Eric French

Abstract

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. (JEL D12, D14, D91, J38)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 7 (December)
Pages: 3111-39

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:7:p:3111-39

Note: DOI: 10.1257/aer.102.7.3111
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  1. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-57, December.
  2. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Could hiking the minimum wage boost the economy?
    by Brad Plumer in Ezra Klein's Wonkblog on 2013-03-07 14:03:47
  2. Wonkbook: Is Washington suddenly working?
    by Evan Soltas in Ezra Klein's Wonkblog on 2013-03-08 12:01:28
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Cited by:
  1. Atif Mian & Amir Sufi, 2014. "House Price Gains and U.S. Household Spending from 2002 to 2006," NBER Working Papers 20152, National Bureau of Economic Research, Inc.
  2. Jonathan A. Parker & Nicholas S. Souleles & Christopher D. Carroll, 2013. "The Benefits of Panel Data in Consumer Expenditure Surveys," NBER Chapters, in: Improving the Measurement of Consumer Expenditures National Bureau of Economic Research, Inc.
  3. Thomas A. Garrett, 2011. "A Federal Reserve System conference on research in applied microeconomics," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 455-462.
  4. Sumit Agarwal & Sujit Chakravorti & Anna Lunn, 2010. "Why do banks reward their customers to use their credit cards?," Working Paper Series WP-2010-19, Federal Reserve Bank of Chicago.
  5. Brian Baugh & Itzhak Ben-David & Hoonsuk Park, 2014. "Disentangling Financial Constraints, Precautionary Savings, and Myopia: Household Behavior Surrounding Federal Tax Returns," NBER Working Papers 19783, National Bureau of Economic Research, Inc.

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