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

Income Inequality Around the World

ISBN: 978-1-78560-944-2, eISBN: 978-1-78560-943-5

ISSN: 0147-9121

Publication date: 27 August 2016

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 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.

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Acknowledgements

Acknowledgments

This paper is supported by Grant #106753 from IDRC (International Development Research Centre) Canada. Myeong-Su Yun’s work is supported by Inha University Research Grant (INHA-53347). We are grateful to the editors, and two anonymous referees for their helpful suggestions and insightful comments. We thank Thomas Lemieux, Stephen Machin, and participants at IZA Workshop on Inequality: Causes and Consequences in Bonn, Germany (March 20–21, 2015); Kaushik Basu, Jan Svejnar, Ravi Kanbur, Haroon Bhorat, Rajeev Dehejia, Henry Wan, and participants at the World Bank Conference on Markets, Labor and Regulation in New Delhi, India (December 17–18, 2014); Yaohui Zhao, Xiaoyan Lei, Lixing Li, Dandan Zhang, Maoliang Ye, and seminar participants at National School of Development of Peking University; Li Yu, Simon Chang, Sophie Wang, and seminar participants at China Center for Human Capital and Labor Market Research of Central University of Finance and Economics in Beijing; Ming Lu and Ninghua Zhong, and seminar participants at Tonji University in Shanghai; Sylvie Démurger and seminar participants at the Groupe d’Analyse et de Théorie Economique (GATE Lyon Saint-Etienne, CNRS) in Lyon, France; Sang-bong Oh at the Korea Labor Institute (KLI) seminar; Chunbing Xing at ORF University of Western Ontario-BNU Joint Workshop on Labor Market in China; Eric S. Lin and seminar participants at Tsing Hua Conference on the Economics of Public Policy of National Tsing Hua University, Taiwan (2014); Shihe Fu and all conference participants in the 2014 Chinese Economists Society (CES) Annual Conference in Guangzhou of China, 2014 Chinese Economic Association (Europe/UK) at University of Gothenburg in Sweden, 2014 Asia Economic Community Forum (ACEF) in Incheon, South Korea, Conference on Reforming Minimum Wage and Labor Regulation Policy in Developing and Transition Economies (Beijing Normal University, October 18, 2014), 2015 Eastern Economic Association Conference in New York, seminars at National Taipei University, IDRC India, Industrial Canada, Carleton University, and Bucknell University. Finally, we are grateful for Shi Li (Beijing Normal University) for his tremendous support and the three editors Lorenzo Cappellari, Solomon Polachek, and Konstantinos Tatsiramos for their encouragement and patience with the final draft. All errors are our own. Send an email to the corresponding author, Myeong-Su Yun (msyun@inha.ac.kr), for any further inquiry.

Citation

Lin, C. and Yun, M.-S. (2016), "The Effects of the Minimum Wage on Earnings Inequality: Evidence from China", Income Inequality Around the World (Research in Labor Economics, Vol. 44), Emerald Group Publishing Limited, Bingley, pp. 179-212. https://doi.org/10.1108/S0147-912120160000044012

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Emerald Group Publishing Limited

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