Consumption Responses to a Major Minimum Wage Increase Evidence from Spain

• González, Ignacio ^[1] ; Sala Lorda, Hector ^[2] ; Trivín, Pedro ^[3]
  1. [1] American University

     American University

     Estados Unidos

     
  2. [2] Universitat Autònoma de Barcelona

     Universitat Autònoma de Barcelona

     Barcelona, España

     
  3. [3] University of Milan

     University of Milan

     Milán, Italia

     

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• Localización: Working papers (Universitat Autònoma de Barcelona. Departament d'Economia Aplicada), Nº. 3, 2025
• Idioma: inglés
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  • This paper investigates the effects of minimum wage increases on household consumption, focusing on Spain’s 2019 mÃnimum wage increase, which raised the floor on wages by an unprecedented 22. 3% in a low-inflation environment. Leveraging high-frequency, confidential transaction data from point-of-sale devices and crèdit card païments at the municipal level, we exploit geographic variation in exposure to the reform to identify its effects. We find that the increase led to a significant rise of 4. 5% in household consumption, with the largest gains concentrated in non essential categories such as electronics, leisure, and spending at restaurants and hotels. We corroborate these findings using household-level data from the Spanish Household Budget Survey. Our findings can be rationalized by a simple model featuring nonhomothetic preferences.