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Determining Minimum Wages in China: Do Economic Factors Dominate?

Listed author(s):
  • Christian Dreger
  • Reinhold Kosfeld
  • Yanqun Zhang

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.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.526571.de/dp1547.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1547.

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Length: 19 p.
Date of creation: 2016
Handle: RePEc:diw:diwwpp:dp1547
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  1. Huang, Yi & Loungani, Prakash & Wang, Gewei, 2014. "Minimum wages and firm employment: evidence from China," Globalization and Monetary Policy Institute Working Paper 173, Federal Reserve Bank of Dallas.
  2. Chu-Chia S. Lin & Ivan Png, 2003. "Monitoring costs and the mode of international investment," Journal of Economic Geography, Oxford University Press, vol. 3(3), pages 261-274, July.
  3. Lee, Lung-fei & Yu, Jihai, 2010. "Estimation of spatial autoregressive panel data models with fixed effects," Journal of Econometrics, Elsevier, vol. 154(2), pages 165-185, February.
  4. Lin, Songhua, 2003. "International Trade, Location and Wage Inequality in China," WIDER Working Paper Series 061, World Institute for Development Economic Research (UNU-WIDER).
  5. Chunbing Xing & Jianwei Xu, 2016. "Regional variation of the minimum wages in China," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-22, December.
  6. Holz, Carsten A., 2014. "Wage determination in China during the reform period," BOFIT Discussion Papers 13/2014, Bank of Finland, Institute for Economies in Transition.
  7. Jing Wang, 2012. "Minimum wage effects on employment and wages: dif-in-dif estimates from eastern China," International Journal of Manpower, Emerald Group Publishing, vol. 33(8), pages 860-876, November.
  8. Sandra Poncet & Florian Mayneris & Tao Zhang, 2014. "The cleansing effect of minimum wage : Minimum wage rules, firm dynamics and aggregate productivity in China," Working Papers 2014-16, CEPII research center.
  9. Luc Anselin, 2003. "Spatial Externalities, Spatial Multipliers, And Spatial Econometrics," International Regional Science Review, , vol. 26(2), pages 153-166, April.
  10. Tony Fang & Carl Lin, 2015. "Minimum wages and employment in China," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-30, December.
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