Analysis of State Minimum Wages Correlated to Financial Products Used by Low-income Households

Several states in recent years have instituted minimum wage policies to address a stagnant federal minimum wage. Historically, exclusions from mainstream banking, racially discriminatory lending policies, and financial industry deregulation have contributed to communities of color and low-income workers’ withdrawal from mainstream banking, increasing the use of alternative financial services (AFS) such as check cashers and payday lenders. The Capstone team explored the relationship between state-level minimum wage policy changes and the use of AFS among low-income Americans, specifically unbanked and underbanked households (those without a bank account, and those who use AFS, respectively). Using publicly-available data, the team conducted multiple regression analyses to test whether state-level minimum wage increases raise the earnings of low-wage workers, resulting in a decrease in household utilization of AFS and a reduction in the number of unbanked individuals. The final report details the study’s findings and conclusions, providing a preliminary assessment of relevant policy implications for financial services and minimum wage.