Minimum Wage Competition between Local Governments in China

26 Pages Posted: 29 Oct 2018

See all articles by Yanan Li

Yanan Li

Beijing Normal University (BNU)

Ravi Kanbur

Cornell University; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Carl Lin

Bucknell University; IZA Institute of Labor Economics

Abstract

The theory of fiscal and regulatory competition between jurisdictions is more advanced than its empirical testing. This is particularly true of labor regulation in general, and minimum wage regulation in particular, and especially so for developing countries. This paper utilizes the spatial lag methodology to study city-level strategic interactions in setting and enforcing minimum wage standards during 2004-2012 in China. We manually collect a panel data set of city-level minimum wage standards from China's government websites. This analysis finds strong evidence of spatial interdependence in minimum wage standards and enforcement among main cities in China.If other cities decrease minimum wage standards by 1 RMB, the host city will decrease its standard by about 0.7-3.2 RMB. If the violation rate in other cities increases by 1 percent, the host city will respond by an increase of roughly 0.4-1.0 percentage points. The results are robust to using three estimation methods, Maximum Likelihood, IV/GMM and a dynamic panel data model. Our findings of strategic interactions suggest the need for policy coordination in labor regulation in China.

Keywords: minimum wage, enforcement, race to the bottom, strategic interactions, China

JEL Classification: J38

Suggested Citation

Li, Yanan and Kanbur, Ravi and Lin, Carl, Minimum Wage Competition between Local Governments in China. IZA Discussion Paper No. 11893. Available at SSRN: https://ssrn.com/abstract=3273733

Yanan Li (Contact Author)

Beijing Normal University (BNU) ( email )

19 Xinjiekou Outer St
Haidian District
Beijing, Guangdong 100875
China

Ravi Kanbur

Cornell University ( email )

301-J Warren Hall
Ithaca, NY 14853
United States
607-255-7966 (Phone)
607-255-9984 (Fax)

HOME PAGE: http://www.kanbur.dyson.cornell.edu

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Carl Lin

Bucknell University ( email )

1 Dent Drive
Lewisburg, PA 17837
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/profile?key=6255

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