Does a One-Size-Fits-All Minimum Wage Cause Financial Stress for Small Businesses?

Sudheer Chava, Alexander Oettl () and Manpreet Singh ()
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Alexander Oettl: Scheller College of Business, Georgia Tech, Atlanta, Georgia 30308; National Bureau of Economic Research, Cambridge, Massachusetts 02138
Manpreet Singh: Scheller College of Business, Georgia Tech, Atlanta, Georgia 30308

Management Science, 2023, vol. 69, issue 11, 7095-7117

Abstract: Using intertemporal variation in the bounding of a state’s minimum wage by the federal rate and business credit-score data for 15.2 million establishments, we find that the increase in labor costs caused by a higher federal minimum wage leads to lower business credit scores and worsens the financial health of small businesses in the affected states. In particular, small, young, labor-intensive, and minimum-wage-sensitive establishments located in affected states and those located in competitive and low-income areas experience higher financial stress. Increases in the minimum wage are associated with employment reductions and a higher exit rate for small businesses. Our results document some potential costs of a one-size-fits-all nationwide minimum wage for some small businesses.

Keywords: small business; financial distress; minimum wage; credit score (search for similar items in EconPapers)
Date: 2023
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http://dx.doi.org/10.1287/mnsc.2022.4620 (application/pdf)

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Working Paper: Does a One-Size-Fits-All Minimum Wage Cause Financial Stress for Small Businesses? (2019)
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