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

Author

Listed:
  • Sudheer Chava

    (Scheller College of Business, Georgia Tech, Atlanta, Georgia 30308)

  • 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)

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.

Suggested Citation

  • Sudheer Chava & Alexander Oettl & Manpreet Singh, 2023. "Does a One-Size-Fits-All Minimum Wage Cause Financial Stress for Small Businesses?," Management Science, INFORMS, vol. 69(11), pages 7095-7117, November.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:11:p:7095-7117
    DOI: 10.1287/mnsc.2022.4620
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