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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.
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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.
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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.
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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. We controlled for such local condition variables as they are potential determinants of minimum wage decisions.
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In each region, we estimate Eq. All regressions are appropriately weighted by the size of the population in each county and adjust the weight to be the size for the groups such as age, gender, etc. Our results show that, for each of the three groups, the current year minimum wage has a statistically significant and positive effect on the average wage for the East, Central, and all regions over — We also find positive but milder effects of the one-year lagged minimum wage variable on the average wage nationwide.
However, we do not find any significant wage effect in the Western region. In short, we show that minimum wage changes in the East, Central, and all regions have positively affected the observed wages of young adults, at-risk groups, and the entire sample of workers.
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Next, using Eq. The significance of our results is compelling: for the entire country, we find negative effects of the current and lagged minimum wage on employment. In the more developed and prosperous East China, covering large urban centers such as Beijing, Shanghai, and Guangzhou, the minimum wage has been an important policy tool as China makes the critical transition into a market economy.
Consequently, the magnitude and frequency of minimum wage increases are relatively high and the impact of minimum wages on employment can be evident. The current minimum wage effects are negative but statistically insignificant. In the developing Central region, we also find that one-year lagged minimum wages have a strong negative employment effect on young adults, at-risk groups, and the entire working population.
The estimated effect of the current minimum wage is negative but statistically insignificant. Finally, in the less developed West, although the estimated coefficients are relatively larger, we do not find a statistically significant effect of the minimum wage on employment. A large number of international studies of minimum wages have reported that young workers are most vulnerable to minimum wage increases, and the disemployment effect seems especially strong for teenagers.
Female workers are particularly disadvantaged in the labor market. We therefore separate the sample into four age subgroups: 15—29, 30—39, 40—49, and 50— Footnote 25 In each age group, we estimate Eq. Consistent with most studies in the literature, we find that the minimum wage has strong negative effects on young female workers age 15—29 —the most disadvantaged and vulnerable groups in the labor market. In contrast, we do not find significant effects on the employment of young male workers age 15—29 and older workers age 50—64 in the full sample. In the extant literature, the bulk of evidence supports the view that minimum wages reduce the employment of low-wage workers.
Moreover, when researchers focus on the least-skilled groups, which are most likely to be directly affected by minimum wage increases, the evidence for disemployment effects seems to be especially strong Neumark and Wascher In each group, we report the estimates using the fixed-effects model with both fixed year and county effects.
Our results show that minimum wages reduce the employment of low-skilled workers, indicating that Chinese workers who have high school education or less, and those who have vocational school degrees were adversely affected by minimum wage increases. Footnote 26 In contrast, we do not find an effect of minimum wages on workers with a college degree or above including junior college.
We began with estimating the employment effects of minimum wages by three geographical regions and sought to explain the impact for the — period. In particular, these effects are consistently more pronounced for both young adults and at-risk groups in the Central region.
The fact that nearly all the lagged effects are uniformly more pronounced than the current contemporaneous effects for young adults and at-risk groups highlights the importance of the adjustment period through which the disemployment effects would occur. It is worth noting that our finding of a lagged disemployment effect is not an anomaly among the empirical studies in the extant minimum wage literature.
Hamermesh points out that nonlabor inputs such as capital may be costly and slow to adjust in the short run, which will also tend to slow the adjustment of other complementary inputs such as labor. Subsequent empirical studies have tended to find evidence of longer-run disemployment effects of minimum wages: for example, Baker et al. When focusing on young adults and at-risk groups which are more likely to be affected by the minimum wage policy , we found stronger disemployment effects in the East, lagged disemployment effects in the Central, and positive while insignificant effects in the Western region.
The differential disemployment effects across regions can be explained in part by the fact that in the Central and Western regions young adults and at-risk groups tend to work in the state-owned enterprises—a sector that is considerably inefficient and less responsive to market pressures Lin et al. Taken together, our results show heterogeneous employment effects of minimum wages by region, skill, and gender.
Footnote 28 In particular, the effect on young adults and at-risk groups varies, highlighting the importance of heterogeneous effects of minimum wages by the characteristics of those affected. In their influential works, Neumark and Wascher ; Card et al. The main concern of using a normalized minimum wage variable is that average wages can be related to supply and demand factors which also affect youth employment and are affected by minimum wage changes. That is, if wages increase more slowly in places where employment grows more slowly, one could possibly find a negative relationship between normalized minimum wages and employment even when the minimum wage does not increase.
To address this concern, we estimate a non-normalized minimum wage model and control for average wages of groups that are not being examined in the regression as an additional covariate e. Overall, we find that our results are robust whether or not the minimum wages are normalized. That is, we still find statistically significant disemployment effects in the East, Central and all regions for young adults, at-risk groups, and for the entire sample. And we do not find any effect in the Western region.
The fact that the NBS only allows limited access to the microdata up to 16 provinces could cast doubt on the representativeness of the province UHS sample to the entire population. To address this concern, we utilize the Census data to compare descriptive statistics of the 16 sample provinces with the 15 provinces not in our sample, along with the entire census sample. We also compute the two key variables—minimum wage-to-average wage ratio and employment-to-population ratio—by gender, region, age cohort, and educational attainment for all provinces, 16 provinces in our sample, and 15 provinces not in our sample.
The numbers for all provinces and 16 provinces are relatively close to those of 15 provinces not in the sample. We use a large county-level panel dataset that contains relevant information on minimum wages, combined with urban household survey microdata from 16 representative provinces, to estimate the employment effect of minimum wage changes in China over the — period. Compared to previous studies using provincial-level data and reporting mixed results, we find that minimum wage changes in China led to significant negative effects on the employment in the Eastern and Central regions, and caused disemployment for young adults and low-skilled workers, particularly at-risk groups.
Our study makes a number of significant contributions to the empirical literature on minimum wages in China, the largest transitional economy in the world. First, the use of detailed county-level data over 1, counties provides greater accuracy and more variations changes of minimum wages in order to measure their real impact on employment. Second, the unique features of the UHS microdata allow us to directly evaluate the employment effects of minimum wages on those population groups that are at risk of being affected by minimum wage increases, such as young adults and low-skilled workers.
Third, our results are robust to various definitions of minimum wages and the workforce, various subsamples by region, and across a number of population groups. Fourth, minimum wages were strongly enforced after the new Minimum Wage Regulations were enacted in , as such they are expected to have more significant employment effects after Our results show that minimum wages in the provinces with vigorous enforcement did increase wages of the workers while adversely affecting their employment, especially for young adults and low-skilled workers.
Nevertheless, these two positions are not necessarily in conflict.
Introduction
The minimum wage can have negative impacts but also serve those other goals advocated by its supporters. The existing evidence has shown that the minimum wage poses a tradeoff of higher income for some against job losses for others. There is no national minimum wage in China; rather, the minimum wage standards are determined at the provincial level.
The theoretically expected effect of minimum wages on employment is well established in the literature. However, there is no consensus in the existing empirical studies on the magnitude of disemployment effect associated with minimum wage changes. Please refer to Neumark and Wascher for the most extensive survey of employment effects; Card ; Card and Krueger , , ; Neumark and Wascher , ; Williams for U.
The implementation date of a new minimum wage standard for a county can also differ across geographically contiguous neighbors within the same province.
For example, Liaoning Province has the most complicated minimum wage scheme, in which 14 jurisdictions may enact their own standards on different dates. For instance, in , Shenyang, Benxi, Dandong, and Panjin cities did not increase their minimum wages.
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As such detailed minimum wage data by county are not readily available to the public, we took effort to collect the data by ourselves. We are aware that possible endogeneity of minimum wages may bias our results, especially in China the minimum wage standards are set by provincial governments, labor unions, and employer groups.
Neumark and Wascher argue that the earlier evidence from Wages Councils in the UK which did not find disemployment effects is likely not true because a minimum wage is not enacted when the labor market is in trouble, which may lead us to expect fewer adverse effects. Such falsification test helps rule out the endogeneity issue unless we believe that Chinese policymakers time their minimum wage increases to coincide with adverse shocks on less skilled labor markets only.
In addition, our finding of strong wage effects for the less skilled worker, women, and young adults also helps dismiss such kind of endogeneity concern. Similarly, our falsification test also helps reduce the concern raised by Dube et al. In other words, depending on whether one accounts for this issue, the difference can be substantial. We discuss how we address this issue in the Section 3.