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Minimum Wages and Firm Employment; Evidence from China

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  • Yi Huang
  • Prakash Loungani
  • Gewei Wang

Abstract

This paper provides the first systematic study of how minimum wage policies in China affect firm employment over the 2000-2007 periods. Using a novel dataset of minimum wage regulations across more than 2,800 counties matched with firm-level data, we investigate both the effect of the minimum wage and its policy enforcement tightening in 2004. A dynamic panel (difference GMM) estimator is combined with a “neighbor-pairs-approach” to control for unobservable heterogeneity common to “border counties” that are subject to different minimum wage changes. We show that minimum wage increases have a significant negative impact on employment, with an estimated elasticity of -0.1. Furthermore, we find a heterogeneous effect of the minimum wage on employment which depends on the firm's wage level. Specifically, the minimum wage has a greater negative impact on employment in low-wage firms than in high-wage firms. Our results are robust for different treatment groups, sample attrition correction, and placebo tests.

Suggested Citation

  • Yi Huang & Prakash Loungani & Gewei Wang, 2014. "Minimum Wages and Firm Employment; Evidence from China," IMF Working Papers 14/184, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:14/184
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    Cited by:

    1. Linxiang Ye & TH Gindling & Shi Li, 2015. "Compliance with legal minimum wages and overtime pay regulations in China," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-35, December.
    2. repec:eee:chieco:v:44:y:2017:i:c:p:186-202 is not listed on IDEAS
    3. Edward Whitfield, 2016. "China and the Great Doubling: Racing to the Top or Bottom of Global Labour Standards?," Global Policy, London School of Economics and Political Science, vol. 7(1), pages 37-45, February.
    4. Likai Chen & Weining Wang & Wei Biao Wu, 2017. "Dynamic Semiparametric Factor Model with a Common Break," SFB 649 Discussion Papers SFB649DP2017-026, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    5. Waikei R Lam & Xiaoguang Liu & Alfred Schipke, 2015. "China’s Labor Market in the “New Normal”," IMF Working Papers 15/151, International Monetary Fund.
    6. Xue Bai & Arpita Chatterjee & Kala Krishna & Hong Ma, 2018. "Trade and Minimum Wages in General Equilibrium: Theory and Evidence," NBER Working Papers 24456, National Bureau of Economic Research, Inc.
    7. Tobias Haepp & Carl Lin, 2017. "How Does the Minimum Wage Affect Firm Investments in Fixed and Human Capital? Evidence from China," Review of Development Economics, Wiley Blackwell, vol. 21(4), pages 1057-1080, November.
    8. 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.
    9. 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.
    10. Betcherman, Gordon, 2014. "Labor market regulations : what do we know about their impacts in developing countries ?," Policy Research Working Paper Series 6819, The World Bank.
    11. Katalin Bodnár & Ludmila Fadejeva & Stefania Iordache & Liina Malk & Desislava Paskaleva & Jurga Pesliakaite & Nataša Todorovic Jemec & Peter Tóth & Robert Wyszynski, 2017. "How do firms adjust to rises in the minimum wage? Survey evidence from Central and Eastern Europe," Working and Discussion Papers WP 9/2017, Research Department, National Bank of Slovakia.
    12. Harald Hau & Yi Huang & Gewei Wang, 2017. "Firm Response to Competitive Shocks: Evidence from China's Minimum Wage Policy," CESifo Working Paper Series 6637, CESifo Group Munich.
    13. Aaronson, Daniel & French, Eric Baird & Sorkin, Isaac, 2016. "Industry Dynamics and the Minimum Wage: A Putty-Clay Approach," CEPR Discussion Papers 11097, C.E.P.R. Discussion Papers.
    14. Bin Ni & Kyosuke Kurita, 2018. "The Minimum Wage, Exports, and Firm Performance: Evidence from Indonesia," Discussion Paper Series 171, School of Economics, Kwansei Gakuin University, revised Jan 2018.
    15. Hau, Harald & Huang, Yi & Wang, Gewei, 2016. "Firm Response to Competitive Shocks: Evidence from China's Minimum Wage Policy," CEPR Discussion Papers 11429, C.E.P.R. Discussion Papers.
    16. Häberli, Christian, 2016. "An International Regulatory Framework for National Employment Policies," Papers 963, World Trade Institute.
    17. Christian Dreger & Reinhold Kosfeld & Yanqun Zhang, 2016. "Determining minimum wages in China: Do economic factors dominate?," ERSA conference papers ersa16p101, European Regional Science Association.
    18. Gan, Li & Hernandez, Manuel A. & Ma, Shuang, 2016. "The higher costs of doing business in China: Minimum wages and firms' export behavior," Journal of International Economics, Elsevier, vol. 100(C), pages 81-94.
    19. Florian Mayneris & Sandra Poncet & Tao Zhang, 2016. "Improving or Disappearing: Firm-Level Adjustments to Minimum Wages in China," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2016027, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    20. Dai, Yunhao & Kong, Dongmin & Xu, Jin, 2017. "Does fairness breed efficiency? Pay gap and firm productivity in China," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 406-422.

    More about this item

    Keywords

    Employment; Business enterprises; China; Econometric models; Labor demand; Labor supply; Minimum wages; Wage policy; wage; wages; minimum wage; General; Country and Industry Studies of Trade;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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