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The Consumption Response to Minimum Wages: Evidence from Chinese Households

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  • Ernest Dautovic

    (University of Lausanne)

  • Harald Hau

    (University of Geneva, Swiss Finance Institute, Centre for Economic Policy Research (CEPR), and CESifo (Center for Economic Studies and Ifo Institute))

  • Yi Huang

    (Graduate Institute of International and Development Studies)

Abstract

This paper evaluates the Chinese minimum wage policy for the period 2002-2009 in terms of its impact on low income household consumption. Using a representative household panel, we find support for the permanent income hypothesis, whereby unanticipated and persistent income increases due to minimum wage policy change are fully spent. The impact is driven by households with at least one child. We infer significant positive welfare effects for low income households based on expenditure increases concentrated in health care and education, whereas a negative employment effect of higher minimum wage cannot be confirmed.

Suggested Citation

  • Ernest Dautovic & Harald Hau & Yi Huang, 2017. "The Consumption Response to Minimum Wages: Evidence from Chinese Households," Swiss Finance Institute Research Paper Series 17-01, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1701
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    Cited by:

    1. Fan, Haichao & Lin, Faqin & Tang, Lixin, 2018. "Minimum Wage and Outward FDI from China," Journal of Development Economics, Elsevier, vol. 135(C), pages 1-19.

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    More about this item

    Keywords

    Minimum wages; Labor income; Household consumption; Permanent income hypothesis;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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