Working Paper: CEPR ID: DP12057
Authors: Ernest Dautovic; Harald Hau; Yi Huang
Abstract: This paper evaluates the Chinese minimum wage policy for the period 2002-2009 in terms of its impact on low income household consumption. Using a representative household panel, we fi nd support for the permanent income hypothesis, whereby unanticipated and persistent income increases due to minimum wage policy change are fully spent. The impact is driven by households with at least one child. We infer signifi cant positive welfare effects for low income households based on expenditure increases concentrated in health care and education, whereas a negative employment effect of higher minimum wage cannot be con firmed.
Keywords: Minimum Wage; Labor Income; Household Consumption; Permanent Income Hypothesis
JEL Codes: E24; J38; C26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Minimum wage increases (J38) | unanticipated income shocks (G59) |
| unanticipated income shocks (G59) | household consumption (D10) |
| RMB 1,000 increase in labor income due to minimum wage hike (J31) | RMB 1,500 increase in total labor income (J39) |
| Local minimum wage increases (J38) | complement social transfers (H55) |
| Higher minimum wages (J38) | unemployment among low-income households (J64) |
| Minimum wage increases (J38) | household consumption (D10) |
| Minimum wage increases (J38) | consumption elasticity (D12) |
| Minimum wage increases (J38) | welfare effects in households with children (H31) |
| Minimum wage increases (J38) | expenditures in health care and education (H75) |