Is there actual evidence that a minimum wage decreases total consumption? I’ve never heard that, or seen any study on it, and I’d like to learn more.
(Intuitively, it doesn’t seem highly plausible to me, since my assumption would be that it transfers wealth from rich people to poor people, which should increase total consumption, because there’s more room for consumption growth for poorer people, but I’m also not sure if that is true.)
(Edit: after a cursory search of current research on the topic, it seems that the consensus is rather that a minimum wage has a small positive effect on consumption, which is what I would have naively expected.)
First, poor have lower savings rate, and consume faster, so money velocity is higher. Second, minimal wages are local, and I would imagine that poor people on average spend a bigger fraction of their consumption locally (but I am not as certain about this one).
Is there actual evidence that a minimum wage decreases total consumption? I’ve never heard that, or seen any study on it, and I’d like to learn more.
(Intuitively, it doesn’t seem highly plausible to me, since my assumption would be that it transfers wealth from rich people to poor people, which should increase total consumption, because there’s more room for consumption growth for poorer people, but I’m also not sure if that is true.)
(Edit: after a cursory search of current research on the topic, it seems that the consensus is rather that a minimum wage has a small positive effect on consumption, which is what I would have naively expected.)
Remember that I’m not interested in evidence here, this post is just about what the theoretical analysis says :)
In an economy where the relative wealth of rich and poor people is constant, poor people and rich people both have consumption equal to their income.
First, poor have lower savings rate, and consume faster, so money velocity is higher. Second, minimal wages are local, and I would imagine that poor people on average spend a bigger fraction of their consumption locally (but I am not as certain about this one).
Don’t rich people tend to die with a significant portion of their lifetime income unspent, while poor people don’t?