Consumption Response to Minimum Wages: Evidence from Chinese Households

69 Pages Posted: 2 Dec 2019

See all articles by Ernest Dautović

Ernest Dautović

European Central Bank (ECB)

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

Date Written: December, 2019

Abstract

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 household panel, we find that the consumption response to minimum wage income shock is increasing in the minimum wage share of household income and that poorer households fully consume their additional income. 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: household consumption, labor income, minimum wages, transfer income

JEL Classification: E24, J38, C26

Suggested Citation

Dautović, Ernest and Hau, Harald and Huang, Yi, Consumption Response to Minimum Wages: Evidence from Chinese Households (December, 2019). ECB Working Paper No. 2333, Available at SSRN: https://ssrn.com/abstract=3496668

Ernest Dautović

European Central Bank (ECB) ( 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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