Minimum Wages and Employment in China

Tony Fang,Carl Lin

doi:10.2139/ssrn.2370779

Abstract

Since China promulgated new minimum wage regulations in 2004, the magnitude and frequency of changes in the minimum wage have been substantial, both over time and across jurisdictions. This paper uses county-level minimum wage panel data and a longitudinal household survey from 16 representative provinces to estimate the employment effects of minimum wage changes in China over the period of 2004 to 2009. In contrast to the mixed results of previous studies using provincial-level data, we present evidence that minimum wage changes have significant adverse effects on employment in the Eastern and Central regions of China, and result in disemployment for females, young adults, and low-skilled workers.

Highlights

Since China enacted its new minimum wage regulations in 2004, minimum wages have sparked intense debate in the country
In the developing Central region, we find that one-year lagged minimum wages have a strong negative employment effect on young adults, at-risk groups, and the entire working population
When focusing on young adults and at-risk groups, we found stronger disemployment effects in the East, lagged disemployment effects in the Central, and positive while insignificant effects in the Western region

Summary

Introduction

Since China enacted its new minimum wage regulations in 2004, minimum wages have sparked intense debate in the country. This in turn allows us to calculate the dependent variable—the employment-to-population ratio—at the county level, which contains more variation and information on local conditions These unique features of our data provide us an opportunity to generate more reliable estimates of the employment effects of minimum wages in China. County-level foreign direct investment (FDI) is used to control for the possibility that provinces may restrain minimum wage increases to attract foreign investment (Frost 2002) and other factors that may affect the relative labor demand for workers with different skills We controlled for such local condition variables as they are potential determinants of minimum wage decisions

Empirical results and discussion

Findings

Central

Conclusions