Minimum Wages and Firm Employment: Evidence from China

By Yifei Huang, Prakash Loungani, Gewei Wang

October 16, 2014

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Yifei Huang, Prakash Loungani, and Gewei Wang. Minimum Wages and Firm Employment: Evidence from China, (USA: International Monetary Fund, 2014) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper provides the first systematic study of how minimum wage policies in China affect firm employment over the 2000-2007 periods. Using a novel dataset of minimum wage regulations across more than 2,800 counties matched with firm-level data, we investigate both the effect of the minimum wage and its policy enforcement tightening in 2004. A dynamic panel (difference GMM) estimator is combined with a “neighbor-pairs-approach” to control for unobservable heterogeneity common to “border counties” that are subject to different minimum wage changes. We show that minimum wage increases have a significant negative impact on employment, with an estimated elasticity of -0.1. Furthermore, we find a heterogeneous effect of the minimum wage on employment which depends on the firm's wage level. Specifically, the minimum wage has a greater negative impact on employment in low-wage firms than in high-wage firms. Our results are robust for different treatment groups, sample attrition correction, and placebo tests.

Subject: Employment, Labor, Labor markets, Minimum wages, Wage adjustments, Wage policy, Wages

Keywords: China, City variable, Dependent variable, Employee wage, Employment, Employment estimation, End-of-month number, Firm data, Firm employment, Firm hiring, Global, Labor market, Minimum wage policy reform, Minimum wages, Minimum-wage determinant, Policy reform, State firm, Tertiary industry, Wage adjustments, Wage policy, Wages, WP

Publication Details

Pages:

47
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/184
Stock No:

WPIEA2014184
ISBN:

9781498332309
ISSN:

1018-5941

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