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Minimum wage effects across heterogeneous markets

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  • Okudaira, Hiroko
  • Takizawa, Miho
  • Yamanouchi, Kenta

Abstract

Previous studies have reached little consensus on the employment effect of the minimum wage. This paper argues that local labor markets are heterogeneous, in that the impact of the minimum wage is concentrated in specific markets. In particular, we estimate the extent of surplus between each plant’s value of marginal product of labor and wage rate and examine whether the minimum wage impact varies across markets with a differential surplus. Building on the recent policy changes in Japan, we find that the employment effect of an increase in the minimum wage is significant and negative in plants for which the value of marginal product of labor is close to the wage rate and which experienced little surplus pre-reform. The minimum wage increases have little employment effect on plants with a relatively high surplus, even when they have a significant number of minimum wage employees.

Suggested Citation

  • Okudaira, Hiroko & Takizawa, Miho & Yamanouchi, Kenta, 2019. "Minimum wage effects across heterogeneous markets," Labour Economics, Elsevier, vol. 59(C), pages 110-122.
    • Handle: RePEc:eee:labeco:v:59:y:2019:i:c:p:110-122
    DOI: 10.1016/j.labeco.2019.03.004
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    3. Noriaki Matsushima & Kazuki Nishikawa & Jiaying Qiu, 2026. "The effects of minimum wage in inter-regional duopoly competition," OSIPP Discussion Paper 26E003, Osaka School of International Public Policy, Osaka University.
    4. Redmond, Paul & McGuinness, Seamus, 2022. "Heterogeneous effects of a minimum wage increase on hours worked," Research Series, Economic and Social Research Institute (ESRI), number RS132.
    5. Kawaguchi, Daiji & Mori, Yuko, 2021. "Estimating the effects of the minimum wage using the introduction of indexation," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 388-408.
    6. Garcia-Louzao, Jose & Tarasonis, Linas, 2023. "Wage and Employment Impact of Minimum Wage: Evidence from Lithuania," Journal of Comparative Economics, Elsevier, vol. 51(2), pages 592-609.
    7. Yuji Mizushima & Haruko Noguchi, 2021. "Spillover effects of minimum wages on suicide mortality: Evidence from Japan," Working Papers 2105, Waseda University, Faculty of Political Science and Economics.
    8. Linas Tarasonis & Jose Garcia-Louzao, 2020. "A First Glance at the Minimum Wage Incidence in Lithuania using Social Security Data," Bank of Lithuania Discussion Paper Series 23, Bank of Lithuania.
    9. Yuko MORI & Hiroko OKUDAIRA, 2025. "Higher Minimum Wage, Stagnant Income? The case of women's work hours in Japan," Discussion papers 25042, Research Institute of Economy, Trade and Industry (RIETI).
    10. Redmond, Paul & McGuinness, Seamus, 2021. "The impact of the 2016 minimum wage increase on average labour costs, hours worked and employment in Irish firms," Research Series, Economic and Social Research Institute (ESRI), number RS118.
    11. Ekaterina S. Dashkova & Natalia V. Dorokhova, 2023. "Regional labour market: A method for research," Journal of New Economy, Ural State University of Economics, vol. 24(3), pages 119-135, October.
    12. Birca Alic, 2024. "Minimum Wage - A Determininant Of Ensuring Sustainable Employment In The Republic Of Moldova," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 4, pages 132-141, August.
    13. Yann Thommen, 2019. "Réformes structurelles et résilience des marchés du travail en zone euro," Bulletin de l'Observatoire des politiques économiques en Europe, Observatoire des Politiques Économiques en Europe (OPEE), vol. 41(1), pages 21-32, December.
    14. Jeffrey Clemens & Michael R. Strain, 2021. "The Heterogeneous Effects of Large and Small Minimum Wage Changes: Evidence over the Short and Medium Run Using a Pre-Analysis Plan," NBER Working Papers 29264, National Bureau of Economic Research, Inc.
    15. Yann Thommen, 2019. "Réformes structurelles et résilience des marchés du travail en zone euro," Bulletin de l'Observatoire des politiques économiques en Europe, Observatoire des Politiques Économiques en Europe (OPEE), vol. 41(1), pages 21-32, November.
    16. Luis E. Arango & Sergio A. Rivera, 2020. "“Disemployment” effects of the minimum wage in the Colombian manufacturing sector," Borradores de Economia 1107, Banco de la Republica de Colombia.
    17. Yann Thommen, 2019. "Réformes structurelles et résilience des marchés du travail en zone euro," Post-Print hal-04048450, HAL.
    18. Paul Redmond & Seamus McGuinness, 2025. "The impact of a minimum wage increase on hours worked: heterogeneous effects by gender and sector," Economica, London School of Economics and Political Science, vol. 92(365), pages 84-106, January.
    19. Arango, Luis E. & Rivera, Sergio A., 2022. "Moderate wage increases and flexible labour contracts to protect employment in Colombian manufacturing," Journal of Policy Modeling, Elsevier, vol. 44(3), pages 578-598.
    20. Yamagishi, Atsushi, 2021. "Minimum wages and housing rents: Theory and evidence," Regional Science and Urban Economics, Elsevier, vol. 87(C).
    21. Redmond, Paul, 2020. "Minimum wage policy in Ireland," Papers BP2021/2, Economic and Social Research Institute (ESRI).
    22. Qianqian Yang & Nobuaki Hamaguchi, 2025. "Revisiting Minimum Wage: From Labor Economics to Spatial Economics," Discussion Paper Series DP2025-08, Research Institute for Economics & Business Administration, Kobe University.
    23. Hayato Kanayama & Sho Miyaji & Suguru Otani, 2025. "Just After Minimum Wage Hikes: Short-Run Labor-Demand Response and Reallocation," Papers 2505.04555, arXiv.org, revised Mar 2026.

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    Keywords

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    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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