This paper analyzes the effects of a large (~60%) and persistent increase in the minimum wage instituted in Hungary in 2001. We propose a new approach to estimating the employment effects of a minimum wage increase that exploits information on the distribution of wages before and after the policy change. We infer the number of jobs destroyed by comparing the number of pre-reform jobs below the new minimum wage to the excess number of jobs paying at (and above) the new minimum wage. Our estimates imply that the higher minimum wage had a small negative effect on employment, and so the primary effect was pushing up wages. We then use data on a large panel of firms to evaluate the economic incidence of the minimum wage increase. We show that firms highly exposed to the minimum wage experienced substantial increase in their total labor cost. We also find that firms’ profits are not affected, while their sales increased in response to the minimum wage. Exploiting a unqiue data set on producer prices we also show that firms in the manufacturing sector responded to the minimum wage by raising output prices. This evidence indicates that firms passed through the effect of the minimum wage to consumers.