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Abstract
Minimum Wage Regulation (MWR) can raise wage rate, but its relation with labor income share is in controversy. We explore the influence of raising wage rate on labor income share and overwork in China. Panel data regressions are taken mainly based on China’s Industrial Enterprise Database and the International Labor Organization Database. Our findings show that raising wage rate can increase labor income share without leading to overwork. Factors that may significantly increase overwork are a higher proportion of male workers, a larger income gap and a lower per-capita income. We point out that the neoclassical explanation for labor income share is not persuasive. We support policies of raising wage rate and believe MWR is an effective measure to increase labor income share.
Highlights
There has been a worldwide decline in labor income share since the 1980s (Blanchard et al, 1997; Hofman, 2001; Li et al, 2009)
We use twenty-three regressions to verify the influence of raising wage rate on labor income share and overwork
Through nine regressions of three samples and supplemented by the robustness tests, we confirm that raising wage rate has a significant positive influence on labor income share
Summary
There has been a worldwide decline in labor income share since the 1980s (Blanchard et al, 1997; Hofman, 2001; Li et al, 2009). The existing literature generally believes that MWR can raise wage rate (Sen et al, 2011) It is controversial whether MWR is effective to increase labor income share. Neoclassical economics does not believe that raising wage rate can increase labor income share because its positive effect will be offset by the decline of employment. The findings show that raising wage rate can increase labor income share, but not lead to overwork. The implementation of MWR will increase China’s imports by boosting domestic demand and reduce China’s exports by raising wage rate. This may contribute to the re-balance of the world economy.
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