Friday, October 24, 2014

Choosing from the Chinese menu

Is pretty much the same as elsewhere. The Laws of Supply and Demand spoil the broth every time;
While China instituted a minimum wage system in 1994, enforcement of compliance with the law was significantly tightened only in 2004; the results described below are based on post-2004 data.
So what does the evidence show? On average across all firms, we find that an increase in the minimum wage leads to a small decline in employment: a 10% percent increase in the minimum wage lowers employment by a little over 1% percent.
The impact differs across firms, being greater in low-wage firms than in high-wage firms.
No kidding!

1 comment:

  1. In the US market, 4.3% work at or below the minimum wage. Say it is 10% in China. A 1% decrease in overall employment must be concentrated in that group.

    As a broad estimate, that means a 10% increase in the minimum wage leads to a 10% decline in employment among those affected by the minimum wage. That is not a minor effect. Total wages going to the minimum wage group would have remained about the same, but of course 10% lost their jobs.

    This is really helping the poor to climb the laddar of prosperity. If China raises the minimum wage by 30%, I am sure we would see even stronger positive results. (sarc)