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The Consumption Response to Minimum Wages: Evidence from Chinese Households

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  • Dautovic, Ernest
  • Hau, Harald
  • Huang, Yi

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

  • Dautovic, Ernest & Hau, Harald & Huang, Yi, 2017. "The Consumption Response to Minimum Wages: Evidence from Chinese Households," CEPR Discussion Papers 12057, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12057
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    More about this item

    Keywords

    Household consumption; Labor income; minimum wage; Permanent income hypothesis;

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • 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

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