Minimum Wage Impacts on Inequality, Job Formality and the Ethnic Wage Gap in Urban China

Abstract

This paper examines the effects of a minimum wage on wage inequality and employment outcomes in China’s urban minority regions and whether those effects vary for Han and ethnic minorities. Minimum wage data is combined with a proprietary datasource obtained from China’s Household Ethnic Survey (CHES) project. Results reveal that a higher minimum wage reduces wage inequality and leads to larger positive effects for lower-wage minority workers compared to their Han counterparts. In terms of employment, a higher minimum wage promotes formalization of the labour market without any evidence of adverse effects on the likelihood of being unemployed in the formal sector, although some adjustments are made at the intensive margin. The results are robust to alternate estimations that take into account censoring and endogeneity. The findings’ policy implications indicate that the minimum wage is an effective social policy tool that reduces the Han-minority wage gap, as well as induces non-wage benefits, which in turn, should promote social cohesion in China’s urban minority regions.