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Wage Hikes and Housing: Uncovering the Ripple Effects of Minimum Wage Policies

Kai Mendoza in Business & Economy December 2025 • 4 min read.

"Explore how local minimum wage laws impact rental markets, revealing unexpected spatial consequences and landlord gains."

The landscape of minimum wage policies in the United States has undergone a significant transformation, with numerous jurisdictions enacting wage standards that surpass the federal minimum. This patchwork of varying wage levels, especially within metropolitan areas, creates a unique opportunity to study the intricate effects of these policies on local economies, particularly the housing market.

While much of the existing research focuses on the direct impact of minimum wage on employment and earnings, a comprehensive understanding requires examining the secondary effects that ripple through interconnected markets. One critical, yet often overlooked, factor is the role of commuting. Workers frequently live in one location while working in another, exposing them to different minimum wage regulations. This creates a complex interplay that influences local housing demand and rental prices.

This article aims to explore these spatial dynamics, investigating how minimum wage policies in one area can impact rental markets in neighboring communities. By analyzing commuting patterns and rental data, it seeks to uncover the hidden spillover effects that shape the affordability and accessibility of housing in urban areas.

Commuting and the Minimum Wage: How Workplace Policies Affect Residence

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Imagine a scenario where a city raises its minimum wage. Low-wage workers who commute into the city from surrounding areas now earn more. This increased income can lead to a greater demand for housing in their residential neighborhoods, potentially driving up rental prices. This "workplace" effect of the minimum wage can inadvertently undermine the policy's intended benefits by increasing housing costs for low-income individuals.

At the same time, the minimum wage hike might affect the city that enacted the policy, for instance by increasing prices of non-tradable consumption. This “residence” effect will also affect demand for housing in the city and consequently rental prices. Therefore, comprehending these intricate spatial effects requires a detailed understanding of commuting patterns.

To analyze this intricate relationship, the study constructs two key measures: Workplace Minimum Wage: This calculates the average minimum wage faced by workers residing in a specific ZIP code, based on the location of their jobs. Residence Minimum Wage: This simply reflects the minimum wage law in the ZIP code where the worker lives.

By comparing rental changes in ZIP codes with different workplace minimum wages but similar residence minimum wages, the researchers isolate the impact of the workplace policy. This approach allows them to estimate how a 10 percent increase in the workplace minimum wage affects rents in residential areas.

Who Profits? Landlords and the Minimum Wage

The findings suggest that a significant portion of the additional income generated by minimum wage policies ends up in the pockets of landlords. Through simulations, the study estimates that landlords capture approximately 10 cents of each dollar created by the minimum wage. This incidence, however, varies significantly depending on location, with landlords in areas experiencing a rise in the workplace minimum wage but not the residence minimum wage benefiting the most. This detailed analysis highlights the crucial role of commuting patterns in understanding how the benefits of minimum wage policies are distributed across metropolitan areas. By examining these spatial dynamics, policymakers can gain a more nuanced perspective on the true impact of wage regulations and strive for more equitable outcomes.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2208.01791,

Title: From Workplace To Residence: The Spillover Effects Of Minimum Wage Policies On Local Housing Markets

Subject: econ.gn q-fin.ec

Authors: Gabriele Borg, Diego Gentile Passaro, Santiago Hermo

Published: 02-08-2022

Everything You Need To Know

What are the main concepts discussed regarding minimum wage policies and rental markets?

The core concepts involve the impact of minimum wage policies on rental markets, especially considering commuting patterns. Two key measures are used: the "Workplace Minimum Wage," which calculates the average minimum wage faced by workers based on their job locations, and the "Residence Minimum Wage," reflecting the minimum wage where a worker lives. The study analyzes how these factors influence housing demand, rental prices, and the distribution of benefits, with a focus on the spatial dynamics across different locations.

How do commuting patterns affect the relationship between minimum wage and rent prices?

Commuting significantly influences rent prices through the "workplace" and "residence" effects of minimum wage. If a city raises its minimum wage, workers who commute into the city from surrounding areas, experiencing a higher "Workplace Minimum Wage", may see their incomes increase. This can lead to greater housing demand and higher rental prices in their residential areas. Simultaneously, the "Residence Minimum Wage" will also have its effects on demand for housing and rent prices. The study explores these spatial dynamics to understand how minimum wage policies in one area impact rental markets in neighboring communities.

What is the difference between Workplace Minimum Wage and Residence Minimum Wage, and why are both relevant?

The "Workplace Minimum Wage" is the average minimum wage faced by workers based on the location of their jobs, while the "Residence Minimum Wage" reflects the minimum wage in the ZIP code where the worker lives. Both are relevant because they capture distinct aspects of the economic environment. By comparing rental changes in ZIP codes with different workplace minimum wages but similar residence minimum wages, researchers can isolate the impact of workplace policies, while understanding the impact of the residence minimum wage. This dual approach allows for a more nuanced analysis of how minimum wage policies affect housing costs across different areas, considering where people work and live.

Who benefits most from minimum wage increases, and how does this relate to commuting?

The findings suggest that landlords capture a significant portion of the additional income generated by minimum wage policies. Through simulations, it is estimated that landlords capture approximately 10 cents of each dollar created by the minimum wage. Landlords in areas experiencing a rise in the "Workplace Minimum Wage" but not the "Residence Minimum Wage" benefit the most. This is because increased income in the workplace, without a corresponding rise in the residence area, can drive up demand for housing in the residential areas, increasing profits for landlords.

How can understanding spatial dynamics improve the effectiveness of minimum wage policies?

By examining spatial dynamics, policymakers can gain a more nuanced perspective on the true impact of wage regulations. Understanding the interplay between commuting patterns, "Workplace Minimum Wage," and "Residence Minimum Wage" allows policymakers to see how the benefits of minimum wage policies are distributed across metropolitan areas. This understanding is crucial for designing policies that achieve more equitable outcomes. For example, if a policy unintentionally increases housing costs, it may undermine its intended goals. By accounting for these spatial effects, policymakers can better anticipate the secondary consequences of wage regulations and create more effective strategies.