Who Pays for the Minimum Wage in the Japanese Manufacturing Sector?

Employers respond to minimum wage hikes by reducing employment, accepting lower profits, or passing costs on to consumers or suppliers. Identifying which margin dominates is key to understanding who bears the cost of the minimum wage. We examine this incidence in Japan’s manufacturing sector, where exporters faced international competition and non-exporters until recently contended with persistently stagnant domestic prices. Using establishment-level data, we find robust evidence of a contraction in factor inputs but no clear cost pass-through to product prices. These results imply that higher labor costs were largely borne by firms and workers, particularly in settings with limited scope for pass-through.