The Impact of Minimum Wage Increases: Analysis after the introduction of numerical targets

This study uses panel data on Japanese firms to examine the impacts of recent minimum wage increases on businesses. We exploit the gap between a prefecture’s minimum wage and those of its neighboring prefectures as an instrument for prefectural minimum wage increases. The results show that, first, increases in the prefectural minimum wage raised average wages for firms located in the prefecture but reduced employment. Second, minimum wage increases lowered firms’ profit margins. Third, we find no evidence that minimum wage increases improved the productivity of firms. These findings suggest that, unless minimum wages are set at levels that appropriately reflect regional differences in productivity and prices, they may have unintended adverse effects on the affected regions.