The minimum wage, inequality and employment in China

This study looks at the welfare implications of the minimum wage in China, and covers three topics: the minimum wage and wage inequality, the minimum wage and employment, and the minimum wage and the gender wage gap. The main finding is that the welfare implications of the minimum wage in China are mixed, with both positive and negative welfare effects. Four main conclusions are reached. Firstly, minimum wages can effectively reduce overall wage inequality at the municipal level (despite non-compliance) through raising individual wages at the lower end of the wage distribution. Secondly, minimum wages generally have significantly negative effects on urban employment with some indication of more marked effects for traditionally disadvantaged groups such as youth, older workers, and women. Thirdly, minimum wages significantly raise women’s wages relative to men’s at the lower quantiles of wage distribution, thus reducing the gender wage gap. Together with the second result, this means that the minimum raises women’s relative wages, while lowering their employment. Fourthly, these three results are especially robust during 2004-2007, when the minimum wage system was reinforced.