This study provides empirical evidence on the impact of a minimum wage increase on employment of workers in the formal sector who have wages below the minimum level in Vietnam. Using the difference‐in‐differences with propensity score matching and the Vietnam Household Living Standard Surveys of 2004 and 2006, the article finds that the minimum wage increase in 2005 reduced the proportion of workers having a formal sector job among low‐wage workers. Most workers who lost formal sector jobs became self‐employed.