The impact of regionally tiered minimum wage on firms' credit default

Are firms better off when two adjacent regions with historically the same minimum wage experience a divergence in the minimum wage? We answer this question by investigating Oregon’s tiered minimum wage policy, implemented in 2016, and examining how introducing a regional wage difference for firms within and outside the Portland urban growth boundary (UGB) impacts firms’ credit default. We find that for firms in the Portland Urban Growth Boundary (UGB) with the higher minimum wage, introducing the tiered system led to a 3.4% increase in their credit scores relative to the credit scores of firms in the surrounding region with a lower minimum wage. This result implies a decrease in the average duration of delayed payment by 3.7 days. Our findings are particularly significant among small, independent, private firms and those outside the low-wage, high-violation industries. Although the intended purpose of the tiered policy was to alleviate financial pressure on firms in lower wage areas, it presents a net advantage to firms in higher-wage Portland UGB. Rather than reducing burdens for firms in surrounding areas that pay lower wages, the tiered policy has unintentionally placed them at a comparative disadvantage.