1. Aversion to student debt? Evidence from low-wage workers
- Author
-
Jorge Sabat, Radhakrishnan Gopalan, David Sovich, and Barton H. Hamilton
- Subjects
History ,Polymers and Plastics ,media_common.quotation_subject ,Low wage ,Industrial and Manufacturing Engineering ,Interest rate ,Payroll ,Debt ,Economics ,Student debt ,Demographic economics ,Business and International Management ,Minimum wage ,media_common ,Student loan - Abstract
We use payroll and consumer credit data to estimate the effect of the minimum wage on the debts of low-wage workers. In the three years following a $0.88 increase in the minimum wage, the average low-wage worker experiences a $2,712 increase in income and a $856 decrease in debt. The entire decline in debt comes from a reduction in student loan borrowing among enrolled college students. Former students and non-students, in contrast, borrow more in response to an increase in the minimum wage. Future credit constraints, changes in labor supply, buffer-stock behavior, and several other channels do not explain the reduction in student loan debt. Two consumption-savings models -- one with student debt aversion and the other with a high perceived student loan interest rate -- best match our empirical findings.
- Published
- 2021