Abstract
This paper examines the distributional impacts of the minimum wage on the urban wages of Han-minority workers and the implications for urban inequality. County-level minimum wage data is combined with recent proprietary household survey data representative of China’s ethnically diverse areas. The identification strategy relies on an unconditional quantile regression framework that takes into account policy endogeneity using an instrument variable approach. The findings show that minimum wages lead to wage compression along the bottom and middle parts of the urban wage distribution. The minimum wage effects are larger for lower-skilled workers located in ethnic minority counties or that belong to an ethnic minority group. Counterfactual analysis further shows that minimum wages help to significantly reduce aggregate urban wage inequality: increasing minimum wages from a counterfactual benchmark to their observed levels, an average increase of 26%, reduces the Gini coefficient of wages by 10–12%.
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