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

Ignacio González (), Hector Sala () and Pedro Trivin
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Ignacio González: American University
Hector Sala: Universitat Autònoma de Barcelona

No 17923, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: nonhomothetic preferences; minimum wage; consumption; transaction data; discretionary spending (search for similar items in EconPapers)
JEL-codes: D12 E21 H31 J31 R20 (search for similar items in EconPapers)
Date: 2025-05
New Economics Papers: this item is included in nep-inv and nep-lma
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