Abstract
We combine state minimum wage changes with individual-level income and credit data to estimate the effect of wage gains on the debt of low-wage workers. In the three years following a $0.88 minimum wage increase, low-wage workers experience a $2,712 income increase and a $856 decrease in debt. The entire decline in debt comes from less student loan borrowing among enrolled college students. Credit constraints, buffer-stock behavior, and other rational channels cannot explain the reduction in student debt. Our results are consistent with students perceiving a utility cost of borrowing student debt arising from mental accounting.
| Original language | English |
|---|---|
| Pages (from-to) | 1249-1295 |
| Number of pages | 47 |
| Journal | Journal of Finance |
| Volume | 79 |
| Issue number | 2 |
| DOIs | |
| State | Published - Apr 2024 |
Bibliographical note
Publisher Copyright:© 2023 the American Finance Association.
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 8 Decent Work and Economic Growth
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
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