Consumption Response to Minimum Wages: Evidence from Chinese Households

67 Pages Posted: 10 Jan 2017 Last revised: 26 Jan 2022

See all articles by Ernest Dautović

Ernest Dautović

European Central Bank

Harald Hau

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Yi Huang

Graduate Institute of International and CEPR

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Date Written: April 28, 2017

Abstract

The paper evaluates the impact of the Chinese minimum wage policy on consumption of low-wage households for the period 2002-2009. Using a representative panel of urban households, we find that the consumption response to minimum wage income hikes is increasing in the share of minimum wage household income, in particular poorer households fully consume their additional income. We do not find empirical support for the hypothesis that liquidity constraints contribute to high consumption propensities. The large marginal propensity to consume is driven by households with at least one child, while childless poor households save two thirds of a minimum wage hike. The expenditure increase is concentrated in health care and education with potentially long-lasting benefits to household welfare.

Keywords: Minimum wages; Household consumption; China

JEL Classification: E24, J38, C26

Suggested Citation

Dautović, Ernest and Hau, Harald and Huang, Yi, Consumption Response to Minimum Wages: Evidence from Chinese Households (April 28, 2017). Swiss Finance Institute Research Paper No. 17-01, Available at SSRN: https://ssrn.com/abstract=2896170 or http://dx.doi.org/10.2139/ssrn.2896170

Ernest Dautović

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Harald Hau (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute

Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Yi Huang

Graduate Institute of International and CEPR ( email )

PO Box 136
Geneva, CH-1211
Switzerland

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