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Minimum Wage Competition between Local Governments in China

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  • Li, Yanan

    (Beijing Normal University)

  • Kanbur, Ravi

    (Cornell University)

  • Lin, Carl

    (Bucknell University)

Abstract

The theory of fiscal and regulatory competition between jurisdictions is more advanced than its empirical testing. This is particularly true of labor regulation in general, and minimum wage regulation in particular, and especially so for developing countries. This paper utilizes the spatial lag methodology to study city-level strategic interactions in setting and enforcing minimum wage standards during 2004-2012 in China. We manually collect a panel data set of city-level minimum wage standards from China's government websites. This analysis finds strong evidence of spatial interdependence in minimum wage standards and enforcement among main cities in China. If other cities decrease minimum wage standards by 1 RMB, the host city will decrease its standard by about 0.7-3.2 RMB. If the violation rate in other cities increases by 1 percent, the host city will respond by an increase of roughly 0.4-1.0 percentage points. The results are robust to using three estimation methods, Maximum Likelihood, IV/GMM and a dynamic panel data model. Our findings of strategic interactions suggest the need for policy coordination in labor regulation in China.

Suggested Citation

  • Li, Yanan & Kanbur, Ravi & Lin, Carl, 2018. "Minimum Wage Competition between Local Governments in China," IZA Discussion Papers 11893, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp11893
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    Cited by:

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    2. Koichi Fukumura & Atsushi Yamagishi, 2020. "Minimum wage competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(6), pages 1557-1581, December.
    3. Kong, Dongmin & Liu, Lihua & Yang, Zhiqing, 2021. "High-speed rails and rural-urban migrants’ wages," Economic Modelling, Elsevier, vol. 94(C), pages 1030-1042.
    4. Ronconi, Lucas & Raphael, Steven, 2024. "Measuring Effective Labor Regulation in the Less Developed World: Recent Advances and Challenges Ahead," IZA Policy Papers 210, Institute of Labor Economics (IZA).
    5. Ravi Kanbur, 2017. "Working Paper 266 - Structural Transformation and Income Distribution: Kuznets and Beyond," Working Paper Series 2377, African Development Bank.
    6. Kanbur, Ravi & Wang, Yue & Zhang, Xiaobo, 2021. "The great Chinese inequality turnaround," Journal of Comparative Economics, Elsevier, vol. 49(2), pages 467-482.
    7. Zhang, Ming-ang & Lu, Shuling & Zhang, Sihan & Bai, Yanfeng, 2023. "The unintended consequence of minimum wage hikes: Evidence based on firms' pollution emission," Energy Economics, Elsevier, vol. 125(C).
    8. Wannaphong Durongkaveroj, 2024. "Structural transformation and inequality: Does trade openness matter?," The World Economy, Wiley Blackwell, vol. 47(6), pages 2631-2663, June.
    9. Muriel Périsse & Clément Séhier, 2019. "Analysing wages and labour institutions in China: An unfinished transition," The Economic and Labour Relations Review, , vol. 30(3), pages 400-421, September.
    10. Chung-Khain Wye & Elya Nabila Abdul Bahri, 2021. "How does employment respond to minimum wage adjustment in China?," The Economic and Labour Relations Review, , vol. 32(1), pages 90-114, March.
    11. Kwak, Kiho & Kim, Namil, 2022. "Industrial Leadership Changes without Technological Discontinuity: Modularization, Institution-Led Market Discontinuity, and Market Development Strategy," Technological Forecasting and Social Change, Elsevier, vol. 180(C).
    12. Kanbur, Ravi, 2017. "Structural Transformation and Income Distribution: Kuznets and Beyond," IZA Discussion Papers 10636, Institute of Labor Economics (IZA).
    13. Haili Ren & Ming Zhu & Bofei Lyu, 2024. "Greening the Economy from the Ground Up: How the Minimum Wage Affects Firms’ Pollution Emissions in China," Sustainability, MDPI, vol. 16(14), pages 1-21, July.

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    More about this item

    Keywords

    minimum wage; enforcement; race to the bottom; strategic interactions; China;
    All these keywords.

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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