The Impact of Minimum Wage Increases in Japan: An analysis after the introduction of numerical targets

This study examines the impacts of recent minimum wage increases on businesses using panel data on Japanese firms. The gap between neighboring prefectures’ minimum wages is used as an instrument for prefectural minimum wage increases. The results shows that, first, prefectural minimum wage increases raised average wages for firms located in the prefecture but reduced employment. Second, minimum wage increases lowered firms’ profit margins. Third, no evidence is found showing that minimum wage increases improved firm productivity. Therefore, minimum wages may adversely affect the concerned regions unintentionally when they are not set at levels reflecting regional difference in productivity.

This is the English version of the Japanese Policy Discussion Paper (26-P-016) with some additional information and changes.