The Hungarian government increased the minimum wage from HUF 25,500 to HUF 40,000 in January 2001. One year later, the wage floor rose further to HUF 50,000. The paper looks at the short-run impact of the first hike on small-firm employment and flows between employment and unemployment. It finds that the hike significantly increased labour costs and reduced employment in the small-firm sector and adversely affected the job-retention and job-finding chances for low-wage workers. While the conditions for a positive employment effect were mostly met in depressed regions, the spatial inequalities were amplified, rather than reduced by the measure.