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Determining Minimum Wages in China: Do Economic Factors Dominate?

Author

Listed:
  • Dreger, Christian

    (DIW Berlin)

  • Kosfeld, Reinhold

    (University of Kassel)

  • Zhang, Yanqun

    (Chinese Academy of Social Sciences)

Abstract

Minimum wages may be an important instrument to reduce income inequality in a society and to promote socially inclusive economic growth. While higher minimum wages can support the Chinese transformation towards consumption driven growth, they can worsen the price competitiveness in export markets. As they differ throughout the country, this paper investigates their determinants at the regional level. In addition to a broad set of economic determinants, such as per capita income and consumption, consumer prices, unemployment and industrial structures, spatial effects are taken into account. They might arise for different reasons, including competition of local policymakers. The results show that the impact of economic variables declines, once spatial spillovers are considered. Although the minimum wage regulation pursues the relevance of economic factors in the determination of the appropriate levels, the actual development is largely driven by regional dependencies. As minimum wage standards set by local officials do not fully reflect the regional economic development, further reforms should be on the agenda.

Suggested Citation

  • Dreger, Christian & Kosfeld, Reinhold & Zhang, Yanqun, 2016. "Determining Minimum Wages in China: Do Economic Factors Dominate?," IZA Discussion Papers 9716, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp9716
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    References listed on IDEAS

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    1. Yi Huang & Prakash Loungani & Gewei Wang, 2014. "Minimum wages and firm employment: evidence from China," Globalization Institute Working Papers 173, Federal Reserve Bank of Dallas.
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    Cited by:

    1. Julian Donaubauer & Christian Dreger, 2018. "The End of Cheap Labor: Are Foreign Investors Leaving China?," Asian Economic Papers, MIT Press, vol. 17(2), pages 94-107, Summer.
    2. Dreger, Christian & Zhang, Yanqun, 2017. "The Hukou Impact on the Chinese Wage Structure," IZA Discussion Papers 10720, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    spatial effects; minimum wages; Chinese transformation; spatial Durbin model;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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