The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Aversion to Student Debt? Evidence from Low‐Wage Workers
Published: 12/08/2023 | DOI: 10.1111/jofi.13297
RADHAKRISHNAN GOPALAN, BARTON H. HAMILTON, JORGE SABAT, DAVID SOVICH
We combine state minimum wage changes with individual‐level income and credit data to estimate the effect of wage gains on the debt of low‐wage workers. In the three years following a $0.88 minimum wage increase, low‐wage workers experience a $2,712 income increase and a $856 decrease in debt. The entire decline in debt comes from less student loan borrowing among enrolled college students. Credit constraints, buffer‐stock behavior, and other rational channels cannot explain the reduction in student debt. Our results are consistent with students perceiving a utility cost of borrowing student debt arising from mental accounting.