The Consumption Response to Minimum Wages: Evidence from Chinese Households

53 Pages Posted: 27 Nov 2017

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: November 21, 2017

Abstract

This paper evaluates the Chinese minimum wage policy for the period 2002-2009 in terms of its impact on low income household consumption. Using a representative household panel, we find support for the permanent income hypothesis, whereby unanticipated and persistent income increases due to minimum wage policy change are fully spent. The impact is driven by households with at least one child. We infer significant positive welfare effects for low income households based on expenditure increases concentrated in health care and education, whereas a negative employment effect of higher minimum wage cannot be confirmed.

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 (November 21, 2017). Available at SSRN: https://ssrn.com/abstract=3075020 or http://dx.doi.org/10.2139/ssrn.3075020

Ernest Dautovic (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Harald Hau

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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