Minimum Wages, Cost-Price Pass-Through and Real Welfare Effect of Households

The minimum wage policy should take into account production costs of enterprises and welfare benefits of families. This paper describes the pass-through process of the minimum wage costs in the enterprise sector and the household sector by building a theoretical model, investigates the impact of the minimum wage adjustment on urban household consumption utility and its price pass-through mechanism from the perspective of living costs based on several sets of databases, such as household survey, supermarket prices and industrial enterprises for the first time, and further estimates the net welfare changes including income compensation and consumption utility loss. The findings of the study are as below: (1) The price transfer behavior of enterprises is the main cause of the loss of household consumption utility. The average wage level and labor costs of enterprises rise with the increase of minimum wages. Both the cost-price pass-through elasticity estimated based on the theoretical model and the minimum wage price elasticity coefficient obtained by empirical estimation show that the price transfer behavior of enterprises leads to the rise of final consumer prices; (2) With a 10% increase in minimum wages, the overall household living costs increase by 2.47%–6.76%, and the economic living costs increase by about 122–334 yuan per quarter, among which the living costs are most affected in terms of food, shoes and clothing; (3) Under the combined effect of income compensation and consumption utility loss, the bottom 20% of households and middle 60% of households will get 658 yuan and 469–556 yuan per quarter, respectively. The findings of this paper are conducive to improving the supporting minimum wage policy by taking a number of measures simultaneously, so as to provide a path reference for promoting the realization of Chinese modernization and expanding domestic demand for common prosperity for all.