The Consumption Response to Minimum Wages: Evidence from Chinese Households
51 Pages Posted: 10 Jan 2017 Last revised: 8 May 2018
Date Written: April 28, 2017
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 benefits to household welfare.
Keywords: Minimum wages; Labor income; Household consumption; Permanent income hypothesis
JEL Classification: E24, J38, C26
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