Consumption Response to Minimum Wages: Evidence from Chinese Households
67 Pages Posted: 10 Jan 2017 Last revised: 26 Jan 2022
Date Written: April 28, 2017
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
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