Estimating the Effects of the Minimum Wage Using the Introduction of Indexation

         
Author Name KAWAGUCHI Daiji (Faculty Fellow, RIETI) / MORI Yuko (Tsuda University)
Creation Date/NO. January 2021 21-E-007
Research Project Empirical Analysis on Japanese Labor Market
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Abstract

We examine the impacts of the minimum wage on employment using the minimum wage hike induced by the introduction of indexation of the local minimum wage to the local cost of living. The revision of the Minimum Wage Act in 2007 of Japan essentially required the government to set the minimum wage indexed to the local cost of living with a five-year moratorium period. The government subsequently increased the minimum wage in areas where the cost of living was high relative to the local minimum wage. We find that minimum-wage hikes raised the wages of low-wage workers, but reduced the employment of young, less-educated men. A panel analysis based on matched Labour Force Survey data indicates that the minimum-wage hike decreased the job flows of prime-age men and women.