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China – An increase in the minimum wage leads to a small decline in employment research finds

Our study is the first to use data on minimum wage changes for over 2400 counties in China. We combine the information on minimum wages changes with employment data from the Annual Survey of Industrial Firms, which covers over 70 percent of China’s manufacturing employment. While China instituted a minimum wage system in 1994, enforcement of compliance with the law was significantly tightened only in 2004; the results described below are based on post-2004 data.

So what does the evidence show? On average across all firms, we find that an increase in the minimum wage leads to a small decline in employment: a 10% percent increase in the minimum wage lowers employment by a little over 1% percent.

The impact differs across firms, being greater in low-wage firms than in high-wage firms. This is shown in Figure 1, where firms are grouped into deciles based on the average wage. In the decile of firms with the lowest wages, a 10% increase in minimum wages lowers employment by nearly 1.8%. The impact declines steadily such that for the decile of firms with the highest wages, the impact is 0.6%.

Capture d’écran 2014-10-27 à 08.50.43

Chosen excerpts by Job Market Monitor. Read the whole story at Does Raising the Minimum Wage Hurt Employment? Evidence from China | iMFdirect – The IMF Blog.

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