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Consumption Responses to a Major Minimum Wage Increase: Evidence from Spain

Author

Listed:
  • González, Ignacio

    (American University)

  • Sala, Hector

    (Universitat Autònoma de Barcelona)

  • Trivín, Pedro

    (University of Milan)

Abstract

This paper investigates the effects of minimum wage increases on household consumption, focusing on Spain’s 2019 minimum wage increase, which raised the floor on wages by an unprecedented 22.3% in a low-inflation environment. Leveraging high-frequency, confidential transaction data from point-of-sale devices and credit card payments at the municipal level, we exploit geographic variation in exposure to the reform to identify its effects. We find that the increase led to a significant rise of 4.5% in household consumption, with the largest gains concentrated in nonessential categories such as electronics, leisure, and spending at restaurants and hotels. We corroborate these findings using household-level data from the Spanish Household Budget Survey. Our findings can be rationalized by a simple model featuring nonhomothetic preferences.

Suggested Citation

  • González, Ignacio & Sala, Hector & Trivín, Pedro, 2025. "Consumption Responses to a Major Minimum Wage Increase: Evidence from Spain," IZA Discussion Papers 17923, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17923
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    More about this item

    Keywords

    nonhomothetic preferences; minimum wage; consumption; transaction data; discretionary spending;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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