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The consumption response to minimum wage increases

Author

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  • Daniel Aaronson
  • Sumit Agarwal
  • Eric French

Abstract

This paper presents evidence that spending increases more than income, and thus debt rises, in households with minimum wage workers following a minimum wage hike. Furthermore, we show that the size, timing, persistence, and composition of spending is inconsistent with the basic certainty equivalent life cycle model. However, our findings are consistent with a model where households can borrow against part of the value of their durable goods. ; Preliminary and incomplete.

Suggested Citation

  • Daniel Aaronson & Sumit Agarwal & Eric French, 2008. "The consumption response to minimum wage increases," Working Paper Series WP-07-23, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-07-23
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    File URL: http://www.chicagofed.org/digital_assets/publications/working_papers/2007/wp2007_23.pdf
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    References listed on IDEAS

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    Cited by:

    1. Dara Lee Luca & Michael Luca, 2017. "Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit," Harvard Business School Working Papers 17-088, Harvard Business School, revised Mar 2018.
    2. Fabrizio Perri & Dirk Krueger, 2009. "How does Household Consumption Respond to Income Shocks?," 2009 Meeting Papers 14, Society for Economic Dynamics.

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    Keywords

    Minimum wage ; Debt;

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