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

Minimum Wage Policy and Alternative Financial Services in the United States
Josh Merfeld
Jiaqi Dong, Brittany Mazzurco Muscato, Nathaniel Nelson, Natalee Rivera

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.

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