Employment and Working Hours Effects of Minimum Wage Policy in China

Master thesis (2013)

Authors

Contributors

A. Kleinknecht (mentor)
S. Storm (mentor)
M. De Jong (mentor)
Programme
Economics of Innovation (TPM) (TU Delft)
Copyright: © 2013 Wang, H.
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Published Date

07-10-2013

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Programme

Economics of Innovation

Abstract

The effect of minimum wage policy on employment and working hours is crucial for assessing the overall effect of this policy. A large number of scholars studied this issue from both the theoretical and empirical perspectives, but still no consensus was reached. Under the background of economic rebalance which is a transition from the export-oriented economy towards domestic demand-oriented economy in China, this issue is triggering more intensive debate. This paper aims to provide new reliable evidence to this hot debate and fill the knowledge gap in the literature as well. In the paper, a three-year pooled cross-sectional micro data obtained from the large dataset of China General Social Survey covering 28 out of the 34 provinces are used. By establishing regression-adjusted difference in differences models in the short and medium term respectively, a comparative analysis of minimum wage effect on employment and working hours is conducted. The estimation results imply that the negative effect of minimum wage policy on employment and working hours is not very severe: although in the short term it will harm the low-wage male workers' employment and extend their working time, as time goes on, the negative effect will disappear. The Harris and Todaro model could give a possible explanation to the result. Besides, the paper provide the second explanation that the increase of labor productivity may create a space for the increase of minimum wage without hurting employment. In terms of the working hours effect, the increase of minimum wage will extend the working hours for male workers in the short term, but reduce it in the medium term. We attribute this result which is different from many studies in the developed countries to the monthly wage dominant system in China. The longer working hours for male workers in short term may be explained as male workers who remain employed have to extend their working hours to compensate their increase of wage.