Minimum Wages and Housing Rents: Theory and Evidence

Abstract

Whether the minimum wage is an effective redistributive policy is still controversial. I investigate this issue from a new perspective by focusing on the effect of minimum wage hikes on housing rents. It is informative for two reasons. First, if minimum wage hikes increase housing rents, some of the benefits accidentally fall on homeowners rather than workers. Second, housing rents serve as an indicator as to whether and how much minimum wages are beneficial for workers, which I show by developing a spatial equilibrium model. I empirically analyze the causal impact of the minimum wage increase on housing rents in the United States and Japan. In both countries, minimum wages hikes increase housing rents in urban areas: 10% minimum wage increase induces 1%-2% increase in the United States and 2.5%-5% increase in Japan. While the unintended incidence on homeowners is arguably moderate, it is non-negligible. Moreover, it may be more salient if minimum wages induce unemployment. I also suggest the importance of heterogeneous welfare impacts on different groups of minimum wage workers.