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Higher Minimum Wages Reduce Capital Expenditures

Author

Listed:
  • Matthew T. Gustafson

    (Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802)

  • Jason D. Kotter

    (Marriott School of Business, Brigham Young University, Provo, Utah 84602)

Abstract

Using cross-state and intertemporal variation in whether a state’s minimum wage is bound by the federal minimum wage, we provide evidence that minimum wage increases lead U.S. public firms in minimum-wage-sensitive industries (i.e., retail, restaurant, and entertainment) to cut capital expenditures. These effects are concentrated one to two years after the law goes into effect. Prior to the minimum wage increase, investment trends are similar across minimum-wage-sensitive firms in bound versus unbound states, and we find little evidence that minimum wage changes affect U.S. public firm investment outside of these industries.

Suggested Citation

  • Matthew T. Gustafson & Jason D. Kotter, 2023. "Higher Minimum Wages Reduce Capital Expenditures," Management Science, INFORMS, vol. 69(5), pages 2933-2953, May.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:5:p:2933-2953
    DOI: 10.1287/mnsc.2022.4430
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    References listed on IDEAS

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