NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Sudheer Chava

Scheller College of Business
Georgia Institute of Technology
800 West Peachtree Street NW
Atlanta, GA 30308

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NBER Working Papers and Publications

December 2019Does a One-Size-Fits-All Minimum Wage Cause Financial Stress for Small Businesses?
with Alexander Oettl, Manpreet Singh: w26523
Do increases in federal minimum wage impact the financial health of small businesses? Using intertemporal variation in whether a state’s minimum wage is bound by the federal rate and credit-score data for approximately 15.2 million establishments for the period 1989–2013, we find that increases in the federal minimum wage worsen the financial health of small businesses in the affected states. Small, young, labor-intensive, minimum-wage sensitive establishments located in the states bound to the federal minimum wage and those located in competitive and low-income areas experience higher financial stress. Increases in the minimum wage also lead to lower bank credit, higher loan defaults, lower employment, a lower entry and a higher exit rate for small businesses. The results are robust to us...
 
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