Abstract This paper provides a comprehensive assessment of the margins along which firms responded to a large and persistent minimum wage increase in Hungary. We show that employment elasticities are negative but small even four years after the reform; that around 75 percent of the minimum wage increase was paid by consumers and 25 percent by firm owners; that firms responded to the minimum wage by substituting labor with capital; and that disemployment effects were greater in industries where passing the wage costs to consumers is more difficult. We estimate a model with monopolistic competition to explain these findings.

Citation Harasztosi, Peter, and Attila Lindner. 2019. "Who Pays for the Minimum Wage?" American Economic Review , 109 (8): 2693-2727 . DOI: 10.1257/aer.20171445 Choose Format: BibTeX EndNote Refer/BibIX RIS Tab-Delimited