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

Sudheer Chava, Alexander Oettl and Manpreet Singh

No 26523, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Do increases in federal minimum wage impact the financial health of small businesses? Using intertemporal variation in whether a state’s minimum wage is bound by the federal rate and credit-score data for approximately 15.2 million establishments for the period 1989–2013, we find that increases in the federal minimum wage worsen the financial health of small businesses in the affected states. Small, young, labor-intensive, minimum-wage sensitive establishments located in the states bound to the federal minimum wage and those located in competitive and low-income areas experience higher financial stress. Increases in the minimum wage also lead to lower bank credit, higher loan defaults, lower employment, a lower entry and a higher exit rate for small businesses. The results are robust to using nearest-neighbor matching and geographic regression discontinuity design. Our results document some potential costs of a one-size-fits-all nationwide minimum wage, and we highlight how it can have an adverse effect on the financial health of some small businesses.

JEL-codes: G33 G38 J30 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-lma and nep-ure
Note: CF LS POL PR
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