The Spending and Debt Response to Minimum Wage Hikes
Open accessAbstract
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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In the Aaronson et al. (2012) regression Equation (1), the outcome variable is income of household i at period t, and the explanatory variables are household and time fixed effects, and the minimum wage in the state where household i lives in period t.
“In regression Equation (1), the outcome variable is, say, income of household i at period t, and the explanatory variables are household and time fixed effects, and the minimum wage in the state where household i lives in period t.”
From Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects (2020) · cites this paper as Aaronson et al. (2012)
The online appendix’s “State-level Data” and “Appendix B: Standard error calculation” passages describe estimating income using the minimum wage, supporting that part of the description. The passages do not establish that the regression includes household and time fixed effects or that the cited paper’s Equation (1) is the regression described; the online appendix labels a different calculation as Equation (1). No page numbers are available in our copy. (LLM, conf=0.79)
Experimental — accuracy not yet measuredThe stable groups assumption is satisfied for the Aaronson et al. (2012) regression because between each pair of consecutive periods, there are states where the minimum wage does not change.
“The stable groups assumption is satisfied: between each pair of consecutive periods, there are states where the minimum wage does not change.”
From Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects (2020) · cites this paper as Aaronson et al. (2012)
The online appendix’s Table A2 (Additional information; page not given) lists staggered minimum-wage changes across states, supporting the existence of states without a change in some periods. It does not establish that an unchanged state exists between every pair of consecutive periods in the regression or state that a stable-groups assumption is satisfied. (LLM, conf=0.78)
Experimental — accuracy not yet measuredThe Aaronson et al. (2012) regression corresponds to Regression 1.
“This regression corresponds to Regression 1.”
From Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects (2020) · cites this paper as Aaronson et al. (2012)
The online appendix’s State-level Data and Appendix B passages describe regressions of spending and income on the minimum wage, but they do not identify a “Regression 1.” Searches for that label and for a matching regression description found no passage establishing what the citing document’s “this regression” refers to, so the correspondence cannot be checked from our copy. (LLM, conf=0.73)
Experimental — accuracy not yet measuredThe Aaronson et al. (2012) regression is a sharp design.
“This is a sharp design.”
From Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects (2020) · cites this paper as Aaronson et al. (2012)
Appendix B (under State-level Data; page unavailable) describes regressions of spending and income on the minimum wage, but does not characterize the regression as a sharp design. Searches for “sharp design,” “sharp,” and discontinuity or cutoff terminology found no passage in our copy that establishes that classification. (LLM, conf=0.68)
Experimental — accuracy not yet measured
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Cites
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Research works printed but not linked: 6
- Agarwal, Sumit, Chunlin Liu, and Nicholas Souleles. 2007. "The Reaction of Consumption and Debt to Tax Rebates: Evidence from the Consumer Credit Data." Journal of Political Economy 115 (6): 986-1019.
- Attanasio, Orazio P., and G. Weber. 1995. "Is Consumption Growth Consistent with In- tertemporal Optimization? Evidence from the Consumer Expenditure Survey." Journal of Political Economy 103 (6): 1121-1157.
- Baughman, Reagan, and Stacy Dickert-Conlin. 2007. "The Earned Income Tax Credit and Fertility. " Journal of Population Economics 22 (3): 537-563.
- Deaton, Angus. 1991. "Saving and Liquidity Constraints.' Econometrica 59 (5): 1221-1248.
- by Sumit Agarwal and Brent W. Ambrose, 13-36. Palgrave-McMillian Publishing.
- Tauchen, George. 1986. "Finite state Markov chain approximations to univariate and vector autoregressions. " Economics Letters 20: 177-181.
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Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects
de Chaisemartin, C., & D’Haultfœuille, X. (2020) · American Economic Review · doi:10.1257/aer.20181169 · Cited by 5,031 · see citing works
The Poverty of the Carless: Toward Universal Auto Access
King, D. A., Smart, M. J., & Manville, M. (2022) · Journal of Planning Education and Research · doi:10.1177/0739456x18823252 · Cited by 110 · see citing works
A Simple Mapping from MPCs to MPXs
Laibson, D. I., Maxted, P., & Moll, B. (2022) · SSRN Electronic Journal · doi:10.2139/ssrn.4010519 · Cited by 32
- Authors
- Aaronson, D., Agarwal, S., & French, E.
- Affiliations
- Federal Reserve Bank of Chicago (US)
- National University of Singapore (SG)
- Venue
- American Economic Review
- Publisher
- American Economic Association
- Published
- 2012-12-01
- Volume
- 102
- Issue
- 7
- Pages
- 3111-3139
- ISSN
- 0002-8282 (ISSN-L)
- OpenAlex
- W2108950268
- Cited by
- 235
- References
- 0
- Citations by year
- 2026: 7 · 2025: 16 · 2024: 22 · 2023: 22 · 2022: 24 · 2021: 10 · 2020: 18 · 2019: 19 · 2018: 15 · 2017: 19 · 2016: 17 · 2015: 11 · 2014: 17 · 2013: 10 · 2012: 4
- FWCI
- 32.15
- Type
- journal article
- Language
- en
- Open access
- green
- www.openicpsr.org
- Locations
- American Economic Review (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- National University of Singapore (submittedVersion)
- Econstor (Econstor) (submittedVersion)
- UCL Discovery (University College London) (submittedVersion)
- Funders
- Economic and Social Research Council (ES/H021221/1)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Labor market dynamics and wage inequality
- Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy, Pension, Retirement Analysis
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Monetary Policy and Economic Impact
- Keywords
- minimum wage increase, household expenditure, household debt, collateralized debt obligations, vehicle purchase, durable goods, household income
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