Working Paper No. 42: Wenkai Sun, et al: Minimum Wage Effects on Employment and Working Time of Chinese Workers

Sun, Wenkai; Wang, Xianghong; Zhang, Xiaoxi
发表时间：2015/11/7 16:07:13    最近修改时间：2015/11/7 16:07:13

摘要： This paper examines the impact of minimum wage policies on employment,income, and working time. Using data from China Health and Nutrition Survey, wefocus on identifying the shocks or minimum wage adjustments using a pre-specifiedmodel. We control for lagged minimum wage standard, individual characteristics,provincial economic and population variables, and provincial and time fixed effects.We find that, relative to average wage level, minimum wage level has been lower overthe years. Minimum wage has barely noticeable effect on employment, some positiveeffect on raising wages, and shortened the working hours for low-income workers. Insummary, we find some beneficial effects of the minimum wage policies.
关键词：minimum wage; employment; income; working time

 Authors:

        Sun, Wenkai ---- School of Economics, Renmin University of China;

        Wang, Xinaghong ---- School of Economics, Renmin University of China;

        Zhang, Xiaoxi ---- School of Economics, Renmin University of China

1. Introduction and Policy Background

Minimum wage policy has been used in many countries as an instrument toregulate the labor market. China started to try to implement such policy since joiningILO’s “Minimum Wage-Fixing Machinery Convention” in 1984. In November of1993, China issued a formal government executive order that first set minimum wageregulations. Since then, minimum wage was first tested in some developed regionssuch as Shenzhen and Zhuhai. Some new legislatures have set the earlier frameworkfor minimum wage policies, including “Regulations on Minimum Wages inEnterprises” and “Labor Law of the People’s Republic of China”. In March of 2004, when the new “Minimum Wage Regulation” was issued, minimum wage startedto be formally and widely implemented in China, covering all types of enterprises. Many provinces set up new minimum wage standards since that year. In 2004 alone, 24 provincial level governments raised their minimum wage level, with an averageincrease of 20%. In the “Labor contract act” of 2008, the addition of minimum wageprovision further strengthened the power of minimum wage. After a one year holdingof minimum wage adjustment during the financial crisis of 2008, the second wage offrequent minimum wage changes appeared since 2009.

There are a few features worth noticing about minimum wage policies in China. First, the level of minimum wage is relatively low to workers’ average wage, about 32%of the average level, while the international ratio of minimum wage to average isabout 40% to 60% (Han and Wei, 2006). Second, the growth rate of minimum wage islower than that of average wage, further reducing their ratio from 0.44 in 1995 to 0.31in 2011 (Du and Pan, 2009). This trend is shown in Table 1. This may affect theeffectiveness of minimum wage policy. Third, minimum wage standards are set byprovincial governments. The level, frequency, and timing of minimum wageadjustments may vary between regions. Therefore, studying the minimum wageeffects at the country level is not likely to obtain reliable results.

Minimum wage policies have been long debated among scholars. Some areconcerned that minimum wage will distort resource distribution, reduce efficiency,leading to increase of poverty (e.g., Stigler, 1946). Others contend that minimum  wage may actually increase employment and income (e.g., Card and Krueger, 1994).

There are also divided opinions in China about minimum wage policies. Zhang (2002) criticizes the minimum wage policy as a way of price control, reducing China’sindustrial competitiveness. Tong (2007), however, argues that labor cost only accountsfor a small part, three to four percent, of firms’ production cost in China, so minimumwage will not significantly affect competitiveness of Chinese firms.There are some empirical studies of minimum wage effects in China, but theirfindings are not all consistent. Wang and Gunderson (2009, 2011) study theemployment effect of minimum wage using provincial data. They find negative effectof minimum wage on employment in low-growth regions, especially in firms that notstately owned. Luo (2007, 2009) finds that minimum wage reduces employment ofmigrant workers and slightly increases wages for all occupations. Xiao and Xiang(2009) study the minimum wage spillover effect using panel data from six large citiesbetween 1995 and 2006. They find that minimum wage can narrow the wage gap foremployees.

It seems that the above existing literature in China has focused much on the directeffects of minimum wage on employment, wage, and firm profit, but rarely onworking time of workers. Working time can be used by firms as an instrument toadjust to minimum wage policies. When hourly minimum wage level is raised, firmscan reduce costs through reducing working houses and increasing work intensity. If minimum wage standard is set for a month, firms can dilute hourly pay throughincreasing monthly working hours. It is worth to investigate whether the minimumwage effect on working time is significant and whether it has spillover effect onhigher-income group.This paper investigates the minimum wage effects from multiple aspectsincluding employment, income, and with special attention to working time. Wecombine micro data from China Health and Nutrition Survey ( CHNS, 2004, 2006,2009, and 2011), provincial minimum wages, macroeconomic and population  statistics to form pooled cross-sectional empirical analysis based on themethodological framework used by Neumark (2001, 2004) for minimum wage effectfor income distribution. We also investigate possible minimum wage spillover effectof working time to groups that are earning higher income.

This paper contributes tothe existing literature mainly in three aspects. Frist, while existing studies in Chinamostly depend on macro data or very short panel, our household data observed in fouryears between 2004 and 2011 cover longer time span, contain more detailedinformation, and have experienced frequent provincial minimum wage changes.Second, compared with the simple DID method traditionally used in minimum wagestudies, using method of pooled cross-sectional analysis makes it possible to analyzeeffects of multiple minimum wage changes over time. Third, we fill the gap ofminimum wage effect on working time, especially its spillover effect to higher incomegroups.

The rest of the paper is organized as follows. Section 2 describes our data sourcesand main variables; Section 3 explains our analytical methods; Section 4 and Section5 report our empirical results and robustness check; Section 6 concludes the paper.