{
  "title": "Does Raising the Minimum Wage Hurt Employment? Evidence from China",
  "publication": "IMF Blog, October 23, 2014",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2014/10/23/does-raising-the-minimum-wage-hurt-employment-evidence-from-china",
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  "summary": "Raising the minimum wage is a polarizing issue: one side worries it will lower employment; the other emphasizes positive impacts on living standards of the poor.",
  "sections": [
    {
      "heading": "Overview and motivation",
      "content": "- Raising the minimum wage is a polarizing issue: one side worries it will lower employment; the other emphasizes positive impacts on living standards of the poor.\n- Much existing evidence comes from high-income (“advanced”) economies; less is known about emerging markets where minimum wage policy is on the agenda.\n- China accounts for nearly 25 percent of the global labor force, so evidence from China is important for understanding minimum wage effects in emerging markets."
    },
    {
      "heading": "Data and methodology",
      "content": "- First study to use data on minimum wage changes for over 2400 counties in China.\n- Minimum wage data are combined with employment data from the Annual Survey of Industrial Firms, which covers over 70 percent of China’s manufacturing employment.\n- Although China instituted a minimum wage system in 1994, enforcement was significantly tightened only in 2004; results described are based on post-2004 data.\n- Strategy to address omitted factors: compare firms with “twin” firms in contiguous regions (assumption that contiguous-region firms are more likely to have similar employment trends) and control for developments in employment at the twin firm."
    },
    {
      "heading": "Main empirical findings",
      "content": "- On average across all firms:\n  - \"a 10% percent increase in the minimum wage lowers employment by a little over 1% percent.\"\n- Heterogeneous effects by firm wage level (firms grouped into deciles based on average wage):\n  - Lowest-wage decile: \"a 10% increase in minimum wages lowers employment by nearly 1.8%.\"\n  - Highest-wage decile: impact is \"0.6%.\"\n  - The impact declines steadily across deciles from low-wage to high-wage firms.\n- Impact on firm wages:\n  - On average, \"an increase in the minimum wage raises wages by about 1%.\"\n  - Lowest-wage decile: increase is \"about 2.5%.\"\n  - Effect declines steadily across deciles; essentially no impact for the highest decile.\n- Robustness: without twin-firm controls, the estimated impact is qualitatively similar to Figure 1 but quantitatively smaller on average."
    },
    {
      "heading": "Interpretation and mechanism insights",
      "content": "- The minimum wage affects employment and wages unevenly across the wage distribution of firms:\n  - Low-wage firms experience larger employment declines and larger wage increases.\n  - High-wage firms experience smaller employment declines and negligible wage increases.\n- The twin-firm contiguous-region identification strategy helps mitigate concerns that observed employment changes are driven by unobserved local shocks rather than minimum wage changes."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Information on employment and wage impacts is critical for setting the minimum wage level.\n- The study’s evidence for China:\n  - Suggests that \"a 10% increase in the minimum wage lowers employment by 1%.\"\n  - Notes that impacts of this magnitude have been found in studies for high-income countries but generally for sub-groups such as teenagers or low-skilled workers.\n- Policy design must account for differential effects across low-wage and high-wage firms:\n  - Minimum wage settings should balance equity (ensuring low-wage workers can afford a living) and efficiency (avoiding exclusion of low-wage workers from employment prospects).\n  - If raising the minimum wage lowers employment and excludes low-wage workers from employment prospects, it may have adverse effects on both welfare and efficiency.\n\nSource: Does Raising the Minimum Wage Hurt Employment? Evidence from China — Prakash Loungani, October 23, 2014\n\n---\n\n Content in this bundle\n\n- 提高最低工资会损害就业吗？中国的情况; iMFdirect博客\n  - 提高最低工资会损害就业吗？中国的情况; iMFdirect博客 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 提高最低工资会损害就业吗？中国的情况; iMFdirect博客 (PDF){rel=\"external\" type=\"application/pdf\"}\n- Wp14184\n  - Wp14184 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp14184 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- https://www.imf.org/wp-content/uploads/2014/10/chinas-minimum-wage-11.jpg\n- https://www.imf.org/wp-content/uploads/2014/10/chinas-minimum-wage-21.jpg\n\nSource: https://www.imf.org/en/blogs/articles/2014/10/23/does-raising-the-minimum-wage-hurt-employment-evidence-from-china"
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    "Authors: Prakash Loungani",
    "Published: October 23, 2014",
    "Raising the minimum wage is a polarizing issue: one side worries it will lower employment; the other emphasizes positive impacts on living standards of the poor.",
    "Much existing evidence comes from high-income (“advanced”) economies; less is known about emerging markets where minimum wage policy is on the agenda.",
    "China accounts for nearly 25 percent of the global labor force, so evidence from China is important for understanding minimum wage effects in emerging markets.",
    "First study to use data on minimum wage changes for over 2400 counties in China.",
    "Minimum wage data are combined with employment data from the Annual Survey of Industrial Firms, which covers over 70 percent of China’s manufacturing employment.",
    "Although China instituted a minimum wage system in 1994, enforcement was significantly tightened only in 2004; results described are based on post-2004 data.",
    "Strategy to address omitted factors: compare firms with “twin” firms in contiguous regions (assumption that contiguous-region firms are more likely to have similar employment trends) and control for developments in employment at the twin firm.",
    "On average across all firms:",
    "Heterogeneous effects by firm wage level (firms grouped into deciles based on average wage):",
    "Impact on firm wages:",
    "Robustness: without twin-firm controls, the estimated impact is qualitatively similar to Figure 1 but quantitatively smaller on average.",
    "The minimum wage affects employment and wages unevenly across the wage distribution of firms:",
    "The twin-firm contiguous-region identification strategy helps mitigate concerns that observed employment changes are driven by unobserved local shocks rather than minimum wage changes.",
    "Information on employment and wage impacts is critical for setting the minimum wage level.",
    "The study’s evidence for China:",
    "Policy design must account for differential effects across low-wage and high-wage firms:",
    "**提高最低工资会损害就业吗？中国的情况; iMFdirect博客**",
    "**Wp14184**",
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