Does a One-Size-Fits-All Minimum Wage Cause Financial Stress for Small Businesses? / Sudheer Chava, Alexander Oettl, Manpreet Singh.

Format:

Book

Author/Creator:

Chava, Sudheer.

Contributor:

National Bureau of Economic Research.

Oettl, Alexander.

Singh, Manpreet.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26523.

NBER working paper series no. w26523

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

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.

Notes:

Print version record

December 2019.