Li Shi and Carl Lin
This report was featured as a chapter in “GLOBAL WAGE DEBATES: POLITICS OR ECONOMICS?” a joint report co-authored by the global partners of JustJobs Network.
Since China enacted its first minimum wage law in 1994, the magnitude and frequency of changes in the minimum wage have been substantial, both over time and across jurisdictions. The impact of the minimum wage and its controversial nature has sparked heated debate in China, highlighting the importance of rigorous research to inform evidence-based policymaking.
This report summarizes the impacts of the minimum wage policy in China on various aspects of the labor market: overall wages, employment, gender and income inequalities, and regional disparities. The authors pay special attention to the 1.68 million rural-urban migrant workers in China, focusing on the wage and employment impacts they experience as a result of minimum wage policies.
The report’s findings show that since 2004, nominal minimum wages in China have increased substantially, at an average of 11 percent per year, leading to positive effects on wages and decreases in gender wage differentials and income inequality. On the other hand, the rising minimum wage has resulted in job losses for young adults, women, and low-skilled workers.
For migrant workers, the minimum wage has only small negative impacts on migrants’ employment in the east and central regions of the country and no effect in the west. In addition, this research finds that employers have increased the monthly working hours of migrant workers. Offsetting the costs of a higher minimum wage by increasing the number of working hours means that employers do not have to layoff migrant workers.
Taken together, this research shows that the minimum wage policy in China has resulted in both positive and negative effects. As such, policymakers are confronted with a tradeoff. The authors propose, however, that in its application by policymakers, minimum wage policy should focus on its initial intended purpose – ensuring that workers receive remuneration at a particular threshold to provide for their basic needs. Beyond that, the minimum wage should not be used as the primary tool to accomplish other political and economic goals, such as increasing average wages or promoting social development.