IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp9715.html
   My bibliography  Save this paper

The Effects of the Minimum Wage on Earnings Inequality: Evidence from China

Author

Listed:
  • Lin, Carl

    (Bucknell University)

  • Yun, Myeong-Su

    (Inha University)

Abstract

The minimum wage has been regarded as an important element of public policy for reducing poverty and inequality. Increasing the minimum wage is supposed to raise earnings for millions of low-wage workers and therefore lower earnings inequality. However, there is no consensus in the existing literature from industrialized countries regarding whether increasing the minimum wage has helped lower earnings inequality. China has recently exhibited rapid economic growth and widening earnings inequality. Since China promulgated new minimum wage regulations in 2004, the magnitude and frequency of changes in the minimum wage have been substantial, both over time and across jurisdictions. The growing importance of research on the relationship between the minimum wage and earnings inequality and its controversial nature have sparked heated debate in China, highlighting the importance of rigorous research to inform evidence-based policy making. We investigate the contribution of the minimum wage to the well-documented rise in earnings inequality in China over the period from 2004 to 2009 by using city-level minimum wage panel data and a representative Chinese household survey, and we find that increasing the minimum wage reduces inequality – by decreasing the earnings gap between the median and the bottom decile – over the analysis period.

Suggested Citation

  • Lin, Carl & Yun, Myeong-Su, 2016. "The Effects of the Minimum Wage on Earnings Inequality: Evidence from China," IZA Discussion Papers 9715, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp9715
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp9715.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Victor Chernozhukov & Iván Fernández‐Val & Blaise Melly, 2013. "Inference on Counterfactual Distributions," Econometrica, Econometric Society, vol. 81(6), pages 2205-2268, November.
    2. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
    3. Mariano Bosch & Marco Manacorda, 2010. "Minimum Wages and Earnings Inequality in Urban Mexico," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 128-149, October.
    4. John T. Addison & McKinleyl Blackburn, 1999. "Minimum Wages and Poverty," ILR Review, Cornell University, ILR School, vol. 52(3), pages 393-409, April.
    5. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262141027.
    6. David Neumark & Mark Schweitzer & William Wascher, 2005. "The Effects of Minimum Wages on the Distribution of Family Incomes: A Nonparametric Analysis," Journal of Human Resources, University of Wisconsin Press, vol. 40(4), pages 867-894.
    7. Brandt, Loren & Holz, Carsten A, 2006. "Spatial Price Differences in China: Estimates and Implications," Economic Development and Cultural Change, University of Chicago Press, vol. 55(1), pages 43-86, October.
    8. David H. Autor & Alan Manning & Christopher L. Smith, 2016. "The Contribution of the Minimum Wage to US Wage Inequality over Three Decades: A Reassessment," American Economic Journal: Applied Economics, American Economic Association, vol. 8(1), pages 58-99, January.
    9. Gindling, T.H. & Terrell, Katherine, 2007. "The effects of multiple minimum wages throughout the labor market: The case of Costa Rica," Labour Economics, Elsevier, vol. 14(3), pages 485-511, June.
    10. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-529, October.
    11. Neumark, David & Cunningham, Wendy & Siga, Lucas, 2006. "The effects of the minimum wage in Brazil on the distribution of family incomes: 1996-2001," Journal of Development Economics, Elsevier, vol. 80(1), pages 136-159, June.
    12. Johnson, William R & Browning, Edgar K, 1983. "The Distributional and Efficiency Effects of Increasing the Minimum Wage: A Simulation," American Economic Review, American Economic Association, vol. 73(1), pages 204-211, March.
    13. David S. Lee, 1999. "Wage Inequality in the United States During the 1980s: Rising Dispersion or Falling Minimum Wage?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 977-1023.
    14. Richard V. Burkhauser & T. Aldrich Finegan, 1989. "The minimum wage and the poor: The end of a relationship," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 8(1), pages 53-71.
    15. Jing Wang & Morley Gunderson, 2011. "Minimum Wage Impacts In China: Estimates From A Prespecified Research Design, 2000–2007," Contemporary Economic Policy, Western Economic Association International, vol. 29(3), pages 392-406, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ms. Sonali Jain-Chandra & Mr. Philippe Wingender & Rui Mano & Johanna Schauer & Niny Khor & Juzhong Zhuang, 2018. "Inequality in China – Trends, Drivers and Policy Remedies," IMF Working Papers 2018/127, International Monetary Fund.
    2. Mayneris, Florian & Poncet, Sandra & Zhang, Tao, 2018. "Improving or disappearing: Firm-level adjustments to minimum wages in China," Journal of Development Economics, Elsevier, vol. 135(C), pages 20-42.
    3. Ren, Yanjun & Peng, Yanling & Campos, Bente Castro & Li, Houjian, 2021. "Higher minimum wage, better labour market returns for rural migrants? Evidence from China," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1814-1835.
    4. Wannaphong Durongkaveroj, 2021. "Structural transformation and inequality: Does trade openness matter?," Departmental Working Papers 2021-10, The Australian National University, Arndt-Corden Department of Economics.
    5. Atif Khan Jadoon & Abeera Tanveer & Maria Faiq Javed & Ambreen Sarwar, 2021. "Minimum Wages and Poverty: A Cross-Country Analysis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(8), pages 632-643, August.
    6. Jiwei Chen, 2021. "Do minimum wage increases benefit worker health? Evidence from China," Review of Economics of the Household, Springer, vol. 19(2), pages 473-499, June.
    7. Terry Sicular & Shi Li & Ximing Yue & Hiroshi Sato, 2017. "Changing Trends in China’s Inequality: Key Issues and Main Findings," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 201712, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Backhaus, Teresa & Müller, Kai-Uwe, 2019. "Does the German minimum wage benefit low income households?," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203585, Verein für Socialpolitik / German Economic Association.
    2. Teresa Backhaus & Kai-Uwe Müller, 2019. "Does the German Minimum Wage Help Low Income Households?: Evidence from Observed Outcomes and the Simulation of Potential Effects," Discussion Papers of DIW Berlin 1805, DIW Berlin, German Institute for Economic Research.
    3. Sotomayor, Orlando J., 2021. "Can the minimum wage reduce poverty and inequality in the developing world? Evidence from Brazil," World Development, Elsevier, vol. 138(C).
    4. Taiwo Aderemi, 2017. "Minimum Wage and the Working Poor in Nigeria: Is there a Link?," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 60(3), pages 481-499, September.
    5. Alaniz, Enrique & Gindling, T.H. & Terrell, Katherine, 2011. "The impact of minimum wages on wages, work and poverty in Nicaragua," Labour Economics, Elsevier, vol. 18(S1), pages 45-59.
    6. Groisman, Fernando & Boffi, Santiago & Calero, Analía & Cuba, María Soledad & Liniado, Julia & Sconfienza, María Eugenia & Vergara Parra, Albano, 2015. "Social protection to the informal sector: the role of minimum wage and income transfer policies," MPRA Paper 72822, University Library of Munich, Germany.
    7. Alexandros Karakitsios & Manos Matsaganis, 2018. "Minimum Wage Effects on Poverty and Inequality," DEOS Working Papers 1801, Athens University of Economics and Business.
    8. 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.
    9. Sumit Agarwal & Dan Aaronson & Eric French, 2008. "The Consumption Response to Minimum Wage Hikes," 2008 Meeting Papers 379, Society for Economic Dynamics.
    10. Gindling, T.H. & Terrell, Katherine, 2010. "Minimum Wages, Globalization, and Poverty in Honduras," World Development, Elsevier, vol. 38(6), pages 908-918, June.
    11. Pérez Pérez, Jorge, 2020. "The minimum wage in formal and informal sectors: Evidence from an inflation shock," World Development, Elsevier, vol. 133(C).
    12. Kambayashi, Ryo & Kawaguchi, Daiji & Yamada, Ken, 2013. "Minimum wage in a deflationary economy: The Japanese experience, 1994–2003," Labour Economics, Elsevier, vol. 24(C), pages 264-276.
    13. David Neumark & Mark Schweitzer & William Wascher, 2005. "The Effects of Minimum Wages on the Distribution of Family Incomes: A Nonparametric Analysis," Journal of Human Resources, University of Wisconsin Press, vol. 40(4), pages 867-894.
    14. repec:siu:wpaper:35-2012 is not listed on IDEAS
    15. Attakrit Leckcivilize, 2015. "Does the minimum wage reduce wage inequality? Evidence from Thailand," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-23, December.
    16. Simona Ferraro & Jaanika Meriküll & Karsten Staehr, 2018. "Minimum wages and the wage distribution in Estonia," Applied Economics, Taylor & Francis Journals, vol. 50(49), pages 5253-5268, October.
    17. Haroon Bhorat & Ravi Kanbur & Benjamin Stanwix, 2017. "Minimum Wages in Sub-Saharan Africa: A Primer," The World Bank Research Observer, World Bank Group, vol. 32(1), pages 21-74.
    18. Fernando Borraz & Nicolás Gonzalez Pampillón, 2011. "Assessing the Distributive Impact of More than Doubling the Minimum Wage: The Case of Uruguay," Documentos de Trabajo (working papers) 1711, Department of Economics - dECON.
    19. Daniel Aaronson & Sumit Agarwal & Eric French, 2008. "The consumption response to minimum wage increases," Working Paper Series WP-07-23, Federal Reserve Bank of Chicago.
    20. Fernando Borraz & Nicolás González-Pampillón, 2017. "Assessing the distributive effects of minimum wage," Review of Development Economics, Wiley Blackwell, vol. 21(4), pages 1081-1112, November.
    21. Baensch Laura & Lanzalot Maria Laura & Stucchi Rodolfo & Lotti Giulia, 2019. "Do Labor Market Regulations Affect the Link between Innovation and Employment? Evidence from Latin America," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(3), pages 1-13, July.

    More about this item

    Keywords

    China; earnings inequality; minimum wage;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp9715. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.