Higher Minimum Wages Reduce Capital Expenditures

Matthew T. Gustafson () and Jason Kotter
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Matthew T. Gustafson: Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802

Management Science, 2023, vol. 69, issue 5, 2933-2953

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.

Keywords: finance: corporate finance; finance: investment; government: regulations (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:5:p:2933-2953

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