The Spending and Debt Responses to Minimum Wage Increases;

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 as well as simple “rule of thumb” models where consumption is equal to a fraction of current income. However, our findings are consistent with a model where households can borrow against part of the value of their durable goods. We obtain these results from four different datasets – the Consumer Expenditure Survey, Survey of Income and Program Participation, Current Population Survey, and administrative bank and credit bureau records. PRELIMINARY AND INCOMPLETE