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How does employment respond to minimum wage adjustment in China?

Chung-Khain Wye and Elya Nabila Abdul Bahri
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Chung-Khain Wye: Universiti Kebangsaan Malaysia, Malaysia
Elya Nabila Abdul Bahri: University of Malaya, Malaysia

The Economic and Labour Relations Review, 2021, vol. 32, issue 1, 90-114

Abstract: Under what circumstances can minimum wages increase without adverse effects on employment levels? In 31 Chinese provinces between 2004 and 2015, the employment effect of a minimum wage depended on the minimum wage level, foreign direct investment, per capita gross domestic product and labour productivity. A minimum wage increase reduced hiring as foreign direct investment inflow rose, regardless of the amount of investment. Any positive employment effect of a minimum wage increase was mitigated by per capita gross domestic product growth, except when per capita gross domestic product was above the average. Above-average labour productivity enhancement significantly mitigated the adverse employment effect of the minimum wage. Employers responded to a rising minimum wage by increasing hiring when the geometric growth rates of the minimum wage and foreign direct investment for a particular province within a period of time were above the overall average across provinces. However, they scrutinised both annual and overall economic growth within a time period when making hiring decisions in the face of minimum wage adjustments. An inverted U-shape relationship between minimum wages and employment suggest a maximum threshold value for the minimum wage. Thus, government policy measures should foster short-term and long-term economic growth, to facilitate employment creation when minimum wages increase. JEL Codes: J38, J21, F16, O40

Keywords: China; economic growth; employment; foreign direct investment; minimum wage; productivity (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1177/1035304620970838

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