These large variations both across jurisdictions and over time facilitate our estimation of minimum wage effects on employment in China. Footnote 3 The real minimum wage grew at a slower pace before and began to rise thereafter.
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In particular, Fig. Furthermore, as shown by the moving average curve in Fig. Minimum wages in China, — Nominal minimum wages have been adjusted for inflation and expressed in RMB. Minimum-to-average wage ratios in China, by region. How did this regulatory environment affect labor market outcomes in China?
More specifically, did changes in the minimum wage have any impact on employment in the Chinese labor market? Although there is an enormous literature documenting numerous aspects of minimum wages and their role in the labor market, most studies have been conducted in the high-income economies such as the U. Footnote 4. This paper represents the first paper using county-level minimum wages merged with urban household survey microdata in China. Empirically speaking, there are at least three challenges involved in measuring the employment effects of Chinese minimum wages.
First, provinces, municipalities, and autonomous regions Footnote 5 in China have considerable autonomy and flexibility in setting their minimum wages according to local conditions. There are often at least 3 or 4 levels of minimum wage standards applicable to various counties in most provinces. The fact that each county is responsible for selecting its own minimum wage standards implies that the county- or city-level minimum wage data containing the relevant information on the dates and the extent of minimum wage increases are not readily available.
Footnote 6 Second, omission and endogeneity of important variables such as the timing of decisions to adjust minimum wage standards make it difficult to separate causal effects from effects due to other unobserved confounding factors. Footnote 7 Third, in China, it remains difficult to find microdata that can be both plausibly representative of the population and also influenced by minimum wage increases.
Furthermore, some provinces, such as Beijing and Shanghai, do not include social security payments and housing provident funds as part of wages as part of the minimum wages.
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In effect, their actual minimum wages are higher on a comparable basis. Footnote 8.
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- Introduction.
In this paper, we first assess whether and the extent to which minimum wage changes affected the Chinese labor market by measuring the effect of the minimum wage on employment. To do so, we begin by analyzing the labor market responses to changes in minimum wage standards using panel data regressions.
The most distinctive feature of our data—crucial for our research design—is the combination of a large county-level panel data of minimum wages, which covers all counties over counties each year in China, with a urban household survey micro-dataset of 16 representative provinces between and Footnote 9 We use the urban household surveys to construct the county-level variables and then merge the constructed county-level data with the county-level minimum wage data.
The use of county-level data rather than provincial level data allows for a more accurate measurement of the relevant minimum wage and labor market conditions, providing more variation in detecting the effects of minimum wages on employment in China. In particular, we also attempt to evaluate the effects on subgroups of the population, especially those who are at risk of being affected by a minimum wage increase, such as young adults, female and low-skilled workers.
Please note, for expositional convenience, we refer to the minimum wage relative to the average wage as the minimum wage in all discussion of the empirical results. Our results are reported for such normalized measure. We treated it as a simple zero—one dummy variable as the young adults group.
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As such the wages and employment of this at-risk group are most likely to be affected by the changes in minimum wages. Several studies on the employment effects of minimum wages in China found mixed results, and the results for different regions are often opposite to one another. For example, using provincial level data Ni et al. In contrast, Wang and Gunderson used — provincial data of rural migrants and found no adverse effects and in fact a positive employment effect in state-owned enterprises in the East and negative effects in the Central and Western regions. The discrepancies between these studies may be explained in part by the fact that the employment effects of minimum wage increases on different target groups tend to differ.
By examining the effects on several subgroups, our estimates seem to be consistent with their findings—we find that, similar to Ni et al. In contrast, using rural migrants as the target group, we find that the current minimum wage has an adverse and significant effect in the West and a positive though statistically insignificant effect in the East over the same period studied in Wang and Gunderson Footnote Finally, we investigate the impact of the minimum wage on the employment of workers by skill level.
Availability
In theory, low-skilled workers are relatively vulnerable to job loss when facing minimum wage increases. As a placebo test, we do not find a statistically significant effect for high-skilled workers defined those with a college diploma or above. Prior to , China had no minimum wage law. Due to sluggish wage growth and high inflation in the late s, Zhuhai in Guangdong Province first implemented its local minimum wage regulations, followed by Shenzhen, Guangzhou, and Jiangmen in It was not until the eruption of private enterprises in when labor disputes became frequent that the Chinese Central Government began to consider minimum wage legislation Yang The legislation required that all employers pay wages no less than the local minimum wage.
All provincial, autonomous-region, and municipal governments should set their minimum wages according to five principles and report them to the State Council of the Central Government. Specifically, the five principles stipulated that the setting and adjustment of the local minimum wage should synthetically consider the lowest living expenses of workers and the average number of dependents they support, local average wages, labor productivity, local employment, and levels of economic development across regions. These conditions provided considerable flexibility for provinces in setting minimum wage standards, according to economic development principles and the need to attract foreign investment Frost ; Wang and Gunderson By December , 7 of 31 provinces had set their own minimum wages.
By the end of , the number increased to The main features of this law involved extending coverage to state-owned, private enterprises, private non-enterprise units, and employees in self-employed businesses. In particular, the new law established two types of minimum wages: a monthly minimum wage applied to fulltime workers and an hourly minimum wage applied to non-fulltime workers. Importantly, the minimum wage standards were set and adjusted jointly by the local government, trade union, and enterprise confederation of each province.
The draft would then be submitted to the Ministry of Labour and Social Security for review. If no revision request is brought up after the day period, the proposed new minimum wage program is considered to be passed.
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Footnote 11 Employers cannot include subsidies such as overtime pay or canteen allowances, nor travel subsidies, as part of the wage when calculating minimum wages. The new regulations were put into effect on March 1st, and led to substantial increases in minimum wages. The data collection and research design were motivated by an attempt to estimate the effect of minimum wages on employment and address some of the aforementioned empirical challenges.
The purpose of data collection was to obtain information on the minimum wage at the county level over a long time span, with a panel structure allowing for the use of fixed time and county effects to eliminate omitted variable bias arising from unobserved variables that are constant over time and across counties. The wage sample needed to be at the individual level to allow the distribution of minimum wage workers—in each geographic region, age cohort, skill level, and industry—to be estimated.
For these reasons, we sought to collect information on counties that were potentially affected over as many years as possible. Our study uses two primary data sources: the annual Urban Household Survey UHS from to and minimum wage data collected at the county level 6-digit code between and Using survey sampling techniques and daily accounting methods, the UHS collects quarterly data from households in all 31 provinces of Mainland China. Starting late December, survey teams in each province and autonomous region are required to verify and then upload the aggregated annual data to the Division of City Socio-economic Survey of NBS via intranet by January 10th of the following year.
The UHS contains rich arrays of household information, such as income and consumption expenditure; demographic characteristics; work and employment; housing; other family-related matters; and county identifiers 6-digit code. We divide the 31 jurisdictions into three regions following the NBS: the more prosperous and rapidly growing East region, the developing Central region and the less developed and more slowly growing West region.
The open-door policy and economic reforms first started in the Eastern coastal regions. It is well documented see Cai and Wang ; Wang and Gunderson that the labor market in the Eastern region is well developed and mimics a competitive labor market. As such, the external shock of a minimum wage increase with strong enforcement is expected to have significant adverse effects on employment, especially for those who are at-risk youth, females, unskilled, migrants, etc.
Panel data with minimum wages in Mainland China. The panel data used in the analysis include 16 provinces darker areas in the map covering three regions in Mainland China. In contrast, the labor market in the Central and Western regions is relatively underdeveloped where there is still plenty supply of unskilled labor. In a developing country like China, enforcement of the minimum wage could be an important issue that affects the reliability of our results Khamis Hence, we first examine the differences in enforcement across 16 provinces from to by constructing a measure of enforcement as the ratio of the number of workers earning almost exactly at the ongoing minimum wage between the exact minimum wage and 1.
Footnote 12 We show the ratio across provinces and over time in Fig. Enforcement of the minimum wage across provinces, — The vertical axis shows enforcement, which is defined as the number of minimum wage workers divided by the number of workers earning less than the minimum wage. Minimum wage workers earn wages between the exact minimum wage and 1.
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Overall, we find that enforcement increases over time in most provinces, especially after and particularly in the East part of China Beijing, Shanghai, Jiangsu, Shandong, Guangdong and Liaoning. On the other hand, provinces in the West such as Yunnan and Sichuan as well as Henan in the Central do not show increases in enforcement over the period. Our estimated effects of the minimum wage enforcement on wages and employment Additional file 1 : Tables S3 and S4 show that the enforcement has the largest significant effect on wages and employment in the East, a relatively smaller effect in the Central, and no effect in the West.
For example, the estimates of the enforcement on wages for the young adults specification 2 in Additional file 1 : Table S3 are. As shown in Fig. The Central region includes six developing provinces, namely, Henan, Anhui, Hubei, Jiangxi, and Shanxi, which are where most migrants come from. Finally, the Western region covers the one municipality, Chongqing, and three less developed provinces: Gansu, Sichuan, and Yunnan. We also need to collect accurate minimum wage data for each county.
As discussed, provinces in China have considerable autonomy and flexibility in setting their minimum wage standards according to local economic conditions, which creates several levels of standards across counties within the same province. To effectively address this issue, we collected our own minimum wage data from every local government website and carefully recorded the minimum wage information for approximately 2, counties every year from to Columns 1 , 2 , and 3 correspond to the mean of the monthly minimum wages, the standard deviation, and the number of counties for the three regions as well as the 16 provinces in , respectively.
Footnote 15 When calculating the mean minimum wage, we use the time-weighted average method as suggested by Rama The last row reports the mean of the minimum wages of all provinces, their standard deviations, and the total number of counties that raised minimum wages for each year.
Footnote 18 Third, minimum wage hikes sometimes occurred more than once in a year. For example, Beijing increased its minimum wages first in January and then July of , and Jiangsu raised its standards in both April and July of We defined employment as working-age population between the ages of 15 and 64 who are employed in the civilian labor force, report positive annual earnings, are not self-employed, and not enrolled in school. Individuals who work in agricultural production or services, farming, forestry, fishing, and ranching industries are also excluded Neumark and Wascher Sampling weights are applied in all calculations.
Our population is constructed by including all persons in the same demographic group being examined. The second and third rows of the table show that male workers have approximately 10 percentage points lower minimum-to-average-wage ratios and 15 percentage points higher employment-to-population ratios than females, suggesting that Chinese female workers are comparatively disadvantaged in the labor market relative to their male counterparts.
Footnote 19 As anticipated, the more prosperous Eastern region has the lowest minimum-to-average-wage ratio. A large body of empirical evidence from minimum wage studies has consistently found that minimum wages have a greater impact on young and low-skilled workers, especially teenagers. Compared to older workers, young workers, who are often equipped with less human capital, are more likely to earn the minimum wage.
Indeed, we find that young Chinese workers aged 15 to 29 have the highest minimum-to-average-wage ratio. For workers with different levels of skills, the evidence demonstrates that as the skill level increases, the minimum-to-average-wage ratio decreases quickly—dropping continuously from.
The manufacturing sector contains the largest share As to the minimum-to-average-wage ratios, unsurprisingly, we find that the housekeeping sector has the highest ratio. Footnote 21 Among those who earned the exact minimum wage or less than the minimum wage, Furthermore, the minimum-to-average-wage ratio of workers receiving less than the minimum wage is 2. Our empirical strategy is to estimate the impact of minimum wages on the employment of potentially affected workers. Our study takes advantage of household survey data and a more accurate measure of minimum wages at the county level.
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. First, we estimate the effect of minimum wages on average wages to see whether changes in the minimum wage indeed affect the observed wages of the groups being examined in our analysis.
We then estimate a standard set of equations as used in Neumark ; Campolieti et al. E i , t is the log of employment variable employment-to-population ratio of the relevant group e. To address the potential bias from misspecification and factors that may affect labor demand, we include several control variables in the estimation equations. Second, 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 and other factors that may affect the relative labor demand for workers with different skills.