Consumption responses to a major minimum wage increase: Evidence from Spain

This paper examines the effects of minimum wage increases on household consumption, focusing on Spain’s 2019 reform, which raised the wage floor by an unprecedented 22.3 percent in a low-inflation environment. Using high-frequency confidential card-based transaction data, we exploit geographic variation in exposure to the reform. We find that municipalities more exposed to the reform increased consumption by 4.5 percent relative to less-exposed municipalities, with the largest gains concentrated in categories such as electronics, leisure, and spending at restaurants and hotels. We complement this analysis with household-level evidence from the Spanish Household Budget Survey. Consistent with the transaction data, affected households increased their consumption substantially—by 10.2 percent—and exhibited a marginal propensity to consume of 0.8, with spending gains also concentrated in discretionary categories. Combining evidence from both sources, our findings are suggestive of sizable local demand spillovers. Firm-level sectoral evidence further suggests that the costs of the reform were primarily absorbed through the exit of less productive firms rather than through broad employment or price adjustments.