 The effect of minimum wages on consumer bankruptcyDiego Legal and Eric Young Journal of Economics and Business, 2024, vol. 129, issue C, No S0148619524000134 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. Keywords: Consumer bankruptcy; Unsecured credit; Minimum wage (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:129:y:2024:i:c:s0148619524000134 DOI: 10.1016/j.jeconbus.2024.106171 Access Statistics for this article Journal of Economics and Business is currently edited by Emanuele Bajo and Moritz Ritter More articles in Journal of Economics and Business from Elsevier |
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