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Impact of Minimum Wage on Wage Distribution and Wage Gap Between Rural and Urban Registration Groups

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Economic Transition and Labor Market Reform in China

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Abstract

The minimum wage policy is expected to increase the wage level for low-wage group, reduce the poverty and narrow income inequality between high-wage group and low-wage group. Thus, the minimum wage implementation is an important labor policy in both developing and developed countries. Does the minimum wage policy have these effects in China? Chapter 7 analyzes the effects of minimum wage policy on wage levels and wage gap between the rural and urban registration groups in China and provides new evidence for the issue on the effects of minimum wage policy on labor market outcomes. It is found that even though the 1997 minimum wage policy implementation positively affects the wage for both rural and urban registration groups, the enforcement policies of both 2004 and 2008 minimum wage policies have not positively influences on the low-wage group, which may be caused by the minimum wage compliance problems in the private sector and the self-employed sector.

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Notes

  1. 1.

    For details on the CHNS, please refer to Chap. 2 of the book.

  2. 2.

    In this chapter, based on the CHNS questionnaire for Hukou (rural and urban registrations), the rural group is defined as the workers with the rural registration, and the urban group is defined as the workers with the urban registration most of whom are local urban residents. The rural group includes the migrants who move from the rural region to urban region, and the workers who work in the rural regions with rural registration or without the permanent urban registration. Because the migrant sample from 1991 to 2011 is not enough for econometric analysis based on the DID (Difference in Difference) method, this chapter only focuses on the wage gap between the rural and the urban registration groups.

  3. 3.

    For the summary of the literature surveys on the effect of the minimum wage on employment and wage, please see Brown (1999), Card and Krueger (1995a, b), Machin and Manning (1997), Neumark and Wascher (2008), and Boeri and Ours (2013).

  4. 4.

    Regarding the debate on the minimum wage employment effect in the 1980s, it is indicated that there is a negative significant but modest −1% to −3% employment effect (Brown et al. 1982). After the 1990s, using cross-section data, Deere et al. (1995), Currie and Fallick (1996), Burkhauser et al. (2000), and Neumark and Wascher (1992, 2000, 2004) also found results consistent with the standard model prediction of a negative employment effect. On the other hand, using panel data to conduct quasi-natural experiment studies, Card (1992a, b), Katz and Krueger (1992), and Card and Krueger (1995a, b) pointed out that there are no unemployment effects. Similarly, there is no consensus on the effect of MW on employment.

  5. 5.

    For empirical studies on the effects of minimum wage on the wage gaps and income inequality, please see Card and Krueger (1995a, b), and DiNardo et al. (1996) for the U. S., and Robinson (2002, 2005) for the U.K.

  6. 6.

    For an empirical study on the effects of MW on gender wage gap in urban China, please see Li and Ma (2015).

  7. 7.

    They compared minimum wage and the wage change rates from the prior year to the survey year, in addition to the ratios of the wage level to the minimum wage level in the prior year, and these variables and their interactions were utilized to employ the analysis.

  8. 8.

    Li and Ma (2015) analyzed the effect of minimum wage on gender wage gap in China; they indicated that the minimum wage might reduce the gender wage gap in the long term.

  9. 9.

    The survey regions are different from 1991 to 2011. For example, Liaoning is added in the 1997 survey; Beijing, Shanghai, and Chongqi are added in the 2011 survey. The observations in the common regions are utilized in the analyses based on the DID model.

  10. 10.

    According to the Minimum Wage Article published in 1993, the main content of the MW consists of total earnings from work (except the overtime subsidy), any risk job allowance, and social security subsidy. I cannot obtain the detailed allowance and subsidy information from the CHNS survey data.

  11. 11.

    Even though the minimum wage level includes the monthly minimum wage and hourly minimum wage, the former is for the regular worker, and the latter is for the irregular worker. Because the monthly minimum wages can be gained from 1993 to 2011 in these survey regions, whereas the hourly minimum wage information is lacking in some regions, the monthly minimum wage data are used. Thus the monthly wage is used in the analysis.

  12. 12.

    Experience years = age − 6-years of schooling.

  13. 13.

    Ownership types are composed of the government organizations, public organizations (Shiye Danwei), state-owned enterprises (SOE), collectively owned enterprises (COEs), private-owned enterprises/foreign owned enterprises, and others.

  14. 14.

    Occupation is composed of technician, manager, clerk, agriculture worker, manufacturing worker (H), manufacturing worker (L), service worker, and others dummy variables. Based on the questionnaire of CHNS, manufacturing worker (H) is high-skilled manufacturing worker and manufacturing worker (L) is low-skilled manufacturing worker.

  15. 15.

    Employment status is composed of worker, irregular worker I, irregular worker II, self-employed I, self-employed II, and others dummy variables Regular worker is the individual who works for another person or enterprise as permanent employee; irregular worker(I) is the contractor with other people or enterprise; irregular worker(II) is temporary worker; the self-employed (I) is self-employed, owner-manager with employees; the self-employed (II) is self-employed, independent operator with no employee; others is the paid family worker, unpaid family worker, and others.

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Authors and Affiliations

  1. Hitotsubashi University, Tokyo, Japan

    Xinxin Ma

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Ma, X. (2018). Impact of Minimum Wage on Wage Distribution and Wage Gap Between Rural and Urban Registration Groups. In: Economic Transition and Labor Market Reform in China. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-13-1987-7_7

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  • DOI: https://doi.org/10.1007/978-981-13-1987-7_7

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  • Publisher Name: Palgrave Macmillan, Singapore

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