Working Paper No. 35, Shi Li, Carl Lin: The Impacts of the Minimum Wage Policy in China

Li, Shi; Lin, Carl
Published: 2015/11/7 15:03:50    Updated time: 2015/11/7 15:03:50

Abstract: This chapter summarizes the impacts of the minimum wage policy in China on various aspects of the labor market: wages, employment, gender and income inequalities, and regional disparities. In particular, we pay special attention to the 168 million rural-urban migrant workers in China, focusing on the wage and employment impacts they experience as a result of minimum wage policies. Our findings show that since 2004, minimum wages (nominal) in China have substantially increased, with an average of 11 percent per year, leading to positive effects on wages and decreases in gender wage differentials and income inequality. On the other hand, the rising minimum wage has resulted in job losses for young adults, women, and low-skilled workers. For migrant workers, the minimum wage has only small negative impacts on migrants’ employment in the East and Central regions and no effect in the West. In addition, our project finds that employers increase the monthly working hours of migrant workers. This implies that by offsetting the costs of a higher minimum wage by increasing the number of working hours, employers do not see the need to layoff migrant workers.
Keywords: Minimum Wage; Policy

Authors:

        Li, Shi ---- China Institute for Income Distribution, BNU;

        Lin, Carl ---- China Institute for Income Distribution, BNU;

 

Introduction

Since China enacted its first minimum wage law in 1994, the magnitude and frequency of changes in the minimum wage have been substantial, both over time and across jurisdictions.  The growing importance of research on the impacts of the minimum wage and its controversial nature has sparked heated debate in China, highlighting the importance of rigorous research to inform evidence-based policy making.

This chapter summarizes the impacts of the minimum wage policy in China on various aspects of the labor market: wages, employment, gender and income inequalities, and regional disparities.  In particular, we pay special attention to the 168 million rural-urban migrant workers in China, focusing on the wage and employment impacts they experience as a result of minimum wage policies.  Our findings show that since 2004, minimum wages (nominal) in China have substantially increased, with an average of 11 percent per year, leading to positive effects on wages and decreases in gender wage differentials and income inequality. On the other hand, the rising minimum wage has resulted in job losses for young adults, women, and low-skilled workers. For migrant workers, the minimum wage has only small negative impacts on migrants’ employment in the East and Central regions and no effect in the West. In addition, our project finds that employers increase the monthly working hours of migrant workers. This implies that by offsetting the costs of a higher minimum wage by increasing the number of working hours, employers do not see the need to layoff migrant workers.

Taken together, our project shows that the minimum wage policy in China has resulted in both positive and negative effects, creating a tradeoff for policymakers.  We suggest, however, that the implementation of the minimum wage policy should not have significantly negative impact on employment and it should return to its original/simple goal—to protect workers from not receiving their legal remuneration and to maintain individuals and their families’ basic needs for daily lives—without giving many other purposes or missions that are not the minimum wage policy was meant to be (e.g., to help increase average wages or to reduce poverty).