{"title":"The effect of minimum wages on consumer bankruptcy","authors":"Diego Legal , Eric R. Young","doi":"10.1016/j.jeconbus.2024.106171","DOIUrl":null,"url":null,"abstract":"<div><p>We use cross-state differences in minimum wage (MW) levels and county-level consumer bankruptcy rates from 1991–2017 to estimate the effect of changes in minimum wages on consumer bankruptcy. We find that Chapter 7 bankruptcy rates are significantly lower in counties belonging to states with higher MW compared to neighboring counties in the lower MW state: a 10% increase in MW decreases the bankruptcy rate by around 4%. Before the 2005 bankruptcy reform, this effect was almost twice as large as for the entire sample. Theoretically, we cannot sign the effect of MW on bankruptcy and credit utilization; we use a stylized consumption/saving model with default to illustrate the dependence on critical aspects of the model (costs of default, minimum wage levels, and disemployment effects) and to provide intuition on how to interpret our results.</p></div>","PeriodicalId":47522,"journal":{"name":"JOURNAL OF ECONOMICS AND BUSINESS","volume":null,"pages":null},"PeriodicalIF":3.3000,"publicationDate":"2024-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"JOURNAL OF ECONOMICS AND BUSINESS","FirstCategoryId":"1085","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0148619524000134","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
We use cross-state differences in minimum wage (MW) levels and county-level consumer bankruptcy rates from 1991–2017 to estimate the effect of changes in minimum wages on consumer bankruptcy. We find that Chapter 7 bankruptcy rates are significantly lower in counties belonging to states with higher MW compared to neighboring counties in the lower MW state: a 10% increase in MW decreases the bankruptcy rate by around 4%. Before the 2005 bankruptcy reform, this effect was almost twice as large as for the entire sample. Theoretically, we cannot sign the effect of MW on bankruptcy and credit utilization; we use a stylized consumption/saving model with default to illustrate the dependence on critical aspects of the model (costs of default, minimum wage levels, and disemployment effects) and to provide intuition on how to interpret our results.
期刊介绍:
Journal of Economics and Business: Studies in Corporate and Financial Behavior. The Journal publishes high quality research papers in all fields of finance and in closely related fields of economics. The Journal is interested in both theoretical and applied research with an emphasis on topics in corporate finance, financial markets and institutions, and investments. Research in real estate, insurance, monetary theory and policy, and industrial organization is also welcomed. Papers that deal with the relation between the financial structure of firms and the industrial structure of the product market are especially encouraged.