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How do firms respond to minimum wage regulation in China? Evidence from Chinese private firms

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  • Long, Cheryl
  • Yang, Jin

Abstract

To study how firms respond to minimum wage regulation in China, this paper empirically explores a number of dimensions along which firms adjust in response to minimum wage differences, using three waves of a national survey of Chinese private firms. Consistent with the predictions of economic theory, we find that private firms in China respond to minimum wage increases by cutting various fringe benefits such as pension and insurance, and by laying off low-skilled workers and short-term workers. Despite these adjustments, firms cannot fully mitigate the detrimental effects on firm profitability when faced with adverse demand shocks because of the wage rigidity introduced by minimum wage regulation. These findings highlight the unintended consequences of minimum wage regulation on the private sector in China.

Suggested Citation

  • Long, Cheryl & Yang, Jin, 2016. "How do firms respond to minimum wage regulation in China? Evidence from Chinese private firms," China Economic Review, Elsevier, vol. 38(C), pages 267-284.
    • Handle: RePEc:eee:chieco:v:38:y:2016:i:c:p:267-284
    DOI: 10.1016/j.chieco.2016.01.003
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    7. Sjöholm, Fredrik, 2020. "Minimum Wages and Firm-Level Employment in a Developing Country," Working Paper Series 1329, Research Institute of Industrial Economics.
    8. Phan Kim Dung, 2017. "The effects of minimum wage hikes on employment and wages in Vietmam's micro, small, and medium enterprises," WIDER Working Paper Series wp-2017-95, World Institute for Development Economic Research (UNU-WIDER).
    9. Langchuan Peng & Xiaxin Wang & Daixin He, 2019. "How Do Minimum Wage Adjustments Affect Wages In China: Evidence Based On Administrative Personal Income Tax Data," Contemporary Economic Policy, Western Economic Association International, vol. 37(2), pages 349-365, April.
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    More about this item

    Keywords

    Minimum wage regulation; Offsetting behavior; China;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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