Determining Minimum Wages in China: Do Economic Factors Dominate?

21 Pages Posted: 10 Feb 2016

See all articles by Christian Dreger

Christian Dreger

European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

Reinhold Kosfeld

University of Kassel - Economics

Yanqun Zhang

Chinese Academy of Social Sciences (CASS)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2016

Abstract

Minimum wages may be an important instrument to reduce income inequality in a society and to promote socially inclusive economic growth. While higher minimum wages can support the Chinese transformation towards consumption driven growth, they can worsen the price competitiveness in export markets. As they differ throughout the country, this paper investigates their determinants at the regional level. In addition to a broad set of economic determinants, such as per capita income and consumption, consumer prices, unemployment and industrial structures, spatial effects are taken into account. They might arise for different reasons, including competition of local policymakers. The results show that the impact of economic variables declines, once spatial spillovers are considered. Although the minimum wage regulation pursues the relevance of economic factors in the determination of the appropriate levels, the actual development is largely driven by regional dependencies. As minimum wage standards set by local officials do not fully reflect the regional economic development, further reforms should be on the agenda.

Keywords: Chinese transformation, minimum wages, spatial effects

JEL Classification: J30, R23, C23

Suggested Citation

Dreger, Christian and Kosfeld, Reinhold and Zhang, Yanqun, Determining Minimum Wages in China: Do Economic Factors Dominate? (February 2016). DIW Berlin Discussion Paper No. 1547, Available at SSRN: https://ssrn.com/abstract=2730490 or http://dx.doi.org/10.2139/ssrn.2730490

Christian Dreger (Contact Author)

European University Viadrina Frankfurt (Oder) ( email )

Frankfurt (Oder)
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

Reinhold Kosfeld

University of Kassel - Economics ( email )

Nora-Platiel Str. 4
34109 Kassel
Germany

Yanqun Zhang

Chinese Academy of Social Sciences (CASS) ( email )

No.5 Jianguomennei Street
Beijing, 100732
China

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