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Consumer Loan Response to Permanent Labor Income Shocks: Evidence from a Major Minimum Wage Increase

Ibrahim Ethem Guney (), Yavuz Selim Hacihasanoglu () and Semih Tumen ()
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Ibrahim Ethem Guney: Central Bank of Turkey
Yavuz Selim Hacihasanoglu: Central Bank of Turkey

No 10751, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We investigate the impact of a substantial minimum wage increase, which became effective in January 2016, on consumer loans in Turkey. Using bank-level data and designing an original identification strategy, we ask whether the loans provided by banks with a historically high share of low-wage loan customers have increased relative to those provided by banks with a historically low share of low-wage loan customers after January 2016. Our results suggest that consumer loan flows have displayed a limited but statistically and economically meaningful increase following the minimum wage hike. This increase mostly comes from the increase in long-term general-purpose loans. Vehicle loans have also increased, while there is no change in housing loans. In the overall, the minimum wage hike has generated a moderate and transitory increase in the flow of consumer loans extended to low-wage earners in Turkey – perhaps due to delayed consumption effect. Consumption of durables, which can further increase household borrowing capacity through collateralized debt channel, has only slightly and temporarily increased. The underlying long-term trends in the stock of consumer loans have hardly changed.

Keywords: consumer loans; labor income shocks; minimum wages; triple difference (search for similar items in EconPapers)
JEL-codes: D14 E24 G21 J31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ara, nep-cwa, nep-lma, nep-mac and nep-ure
Date: 2017-04
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