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

Agarwal, Sumit; Ambrose, Brent W.; Diop, Moussa

doi:10.21799/frbp.wp.2019.28

Working Paper

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

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.

Keywords: minimum wage increases; lease defaults; rental market; household income;

JEL Classification: G0; G13; G18; G28; R3; R31; R38;

https://doi.org/10.21799/frbp.wp.2019.28