Minimum Wages and Housing Rents: Theory and Evidence

Abstract

I analyze the effect of minimum wage hikes on housing rents, which is illuminating in understanding the desirability of minimum wages for two reasons. First, if the minimum wage increases housing rents, it unintentionally benefits homeowners rather than workers. Second, the rent is a sufficient statistic about the desirability of minimum wages, which I show in a spatial equilibrium model. Utilizing a Japanese natural experiment, I estimate that in the low-quality rental housing market, 10% minimum wage increase induces 2.5%-4.5% increase in rents. It implies that workers benefit from the minimum wage increase, but it also unintentionally benefits homeowners.

Keywords: Minimum Wages, Housing Rents, Capitalization, Spatial Equilibrium, Price Levels

JEL Classification: H70, J38, J61, R23, R38