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Minimum wage and firm employment: Evidence from China

By Yi Huang, Prakash Loungani and Gewei Wang

Abstract

This paper studies how minimum wage policies affect firm employment in China using a unique county level minimum wage data set matched to disaggregated firm survey data. We investigate both the effect of imposing a minimum wage, and the effect of the policies that tightened enforcement in 2004. We find that the average effect of minimum wage changes is modest and positive, and that there is a detectable effect after enforcement reform. Firms have heterogeneous responses to minimum wage changes which can be accounted for by differences in their wage levels and profit margins: firms with high wages or large profit margin increase employment, while those with low wages or small profit margin downsize. The increase in enforcement of China\ub4s minimum wage in 2004 has since amplified this heterogeneity, which implies that labor regulation may reduce the monopsony rent of firms.Our results provide evidence for the theoretical predictions of the positive minimum wage-employment relationship in a monopolistic labor market

Topics: J24, J31, O14, F10, F14, ddc:330, China, employment, minimum wages, heterogeneous effect
Publisher: Geneva: Graduate Institute of International and Development Studies
Year: 2014
OAI identifier: oai:econstor.eu:10419/122103
Provided by: EconStor

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