Review of Financial Studies 2026

Corporate Financial Constraints, Minimum Wage Policies, and Employment

Alona Bilokha¹; Iftekhar Hasan²; Stefano Manfredonia³; Ronald W. Masulis⁴

¹ University of North Florida , the · ² Fordham University, the United States, Bank of Finland , Finland, and University of Sydney, · ³ Fordham University , the · ⁴ University of New South Wales

Abstract

We examine how corporate financial constraints shape firms’ employment responses to minimum wage policies. Exploiting the federal minimum wage increase during the financial crisis and variation in firms’ debt maturity structures at the crisis onset, we find that financially constrained firms significantly reduce employment. To assess external validity, we analyze staggered state-level minimum wage increases over time. Consistent with the crisis evidence, employment declines in establishments of constrained firms, whereas unconstrained firms expand in areas with a larger supply of minimum-wage workers and higher turnover. Our results highlight the central role of financial constraints in mediating labor policy effects.

DOI

10.1093/rfs/hhag075

Language

en

Sources

crossref

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