Household Spending by income and minimum wage

Dear IMPLAN Forum and Staff- I am writing to ask a few questions related to analyzing the potential impacts of a proposed minimum wage increase in a large urban region. First, what assumptions does IMPLAN make regarding the marginal propensity to consume (versus save, etc.) by household income category. If we model the wage increase primarily as new income for low-wage workers (e.g. those in bottom 3 categories) but pass along some of the cost of this as price increases (translated as lower income) to all household groups, including higher income categories, will IMPLAN pick up anything? Can you explain exactly how IMPLAN treats the MPC and the spending patterns of different household income groups and where the underlying data comes from? Second, there are a lot of studies appearing lately that use REMI to model the impact of a minimum wage increase. It seems like these authors can directly modify the labor costs for businesses and then model the impact. However, IMPLAN doesn't seem to have the capability. Can you recommend a parallel way to model the impact of a minimum wage increase in a given region (beyond by HH income transfer scenario?). Thanks very much.
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  • Thomas, Thank you for your post! IMPLAN is an I-O Model and one of the limitations of the modeling method is that I-O models are fixed price (and wage) models. This may be why you have seen more REMI users doing this type of impact, as REMI includes that ability to apply price elasticities (albeit dependent on their underlying assumptions about elasticities.) To some degree you can do something similar with IMPLAN but to get a full scale of the picture you have to consider a potential of several Modeling problems and potential outcomes. For example, how will businesses behave if there is a minimum wage increase. Likely it will impact their behavior as many business will try to adjust their processes to reduce labor costs as a response to increased wage payments. Thus an increase in minimum wage may not result in an expected influx of labor payments to the economy. Thanks!


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