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Do Minimum Wage Increases Benefit Intended Households? Evidence from the Performance of Residential Leases

Author

Listed:
  • Sumit Agarwal
  • Brent W. Ambrose
  • Moussa Diop

Abstract

Prior studies debating the e?ects of changes to the minimum wage concentrate on impacts on household income and spending or employment. We extend this debate by examining the impact of changes to the minimum wage on expenses associated with shelter, a previously unexplored area. Increases in state minimum wages signi?cantly reduce the incidence of renters defaulting on their lease contracts by 1.29 percentage points over three months, relative to similar renters who did not experience an increase in the minimum wage. This represents 25.7% fewer defaults post treatment in treated states. To put this into perspective, a 1% increase in minimum wage translates into a 2.6% decrease in rental default. This evidence is consistent with wage increases having an immediate impact on relaxing renter budget constraints. However, this e?ect slowly decreases over time as landlords react to wage increases by increasing rents. Our analysis is based on a unique data set that tracks household rental payments.

Suggested Citation

  • Sumit Agarwal & Brent W. Ambrose & Moussa Diop, 2019. "Do Minimum Wage Increases Benefit Intended Households? Evidence from the Performance of Residential Leases," Working Papers 19-28, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:19-28
    DOI: 10.21799/frbp.wp.2019.28
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    Cited by:

    1. Anja M. Hahn & Konstantin A. Kholodilin & Sofie R. Waltl, 2020. "Forward to the Past: Short-Term Effects of the Rent Freeze in Berlin," Department of Economics Working Papers wuwp308, Vienna University of Economics and Business, Department of Economics.
    2. Maxence Valentin, 2021. "Regulating short‐term rental housing: Evidence from New Orleans," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(1), pages 152-186, March.
    3. Yamagishi, Atsushi, 2021. "Minimum wages and housing rents: Theory and evidence," Regional Science and Urban Economics, Elsevier, vol. 87(C).

    More about this item

    Keywords

    minimum wage increases; lease defaults; rental market; household income;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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