The Consumption Response to Minimum Wages: Evidence from Chinese Households

51 Pages Posted: 10 Jan 2017 Last revised: 8 May 2018

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 Development Studies

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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 income household for the period 2002-2009. Using a representative household panel, we find that the consumption response to minimum wage hikes is increasing in the minimum wage share of household income. In particular, we find that poorer households fully consume their additional income. This large unitary consumption elasticity of income 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 benefi ts to household welfare.

Keywords: Minimum wages; Labor income; Household consumption; Permanent income hypothesis

JEL Classification: E24, J38, C26

Suggested Citation

Dautovic, Ernest and Hau, Harald and Huang, Yi, The 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 Dautovic

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 Development Studies ( email )

PO Box 136
Geneva, CH-1211
Switzerland

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