Minimum wage effects on employment and wages: dif‐in‐dif estimates from eastern China

Abstract

PurposeThe purpose of this paper is to estimate the impact of minimum wages on employment and wages in China.Design/methodology/approachThe paper uses the difference‐in‐difference methodology to estimate the employment and wage impacts of the minimum wage increase in 2003 – a year when substantial minimum wage increases occurred in some provinces (treatment provinces) but not in others (comparison provinces). The analysis is restricted to the eastern region so as to make comparisons across relatively homogeneous and contiguous provinces with large numbers of women and rural migrant workers in urban areas – the target groups for minimum wages.FindingsThe study finds that overall, minimum wages in China do have an adverse employment effect but the effect is statistically insignificant and quantitatively inconsequential. The adverse employment effects are generally larger in the more market‐driven sectors, in the low‐wage sector of retail and wholesale trade and restaurants, and for women; however even these effects are extremely small. Minimum wages also had no impact on aggregate wages. These estimates appear consistent with many of those based on this methodology which tends to find no substantial adverse employment effect from minimum wages.Practical implicationsGood news: minimum wages do not seem to have any substantial adverse employment effect in China. Bad news: this could simply reflect the fact that they are not enforced.Originality/valueThis is one of the few studies of effect of minimum wages in China in English, and using a difference‐in‐difference methodology as first employed by Card.