Minimum Wages and Firm Employment: Evidence from China

Yifei Huang, Prakash Loungani and Gewei Wang

No 2014/184, IMF Working Papers from International Monetary Fund

Abstract: This paper provides the first systematic study of how minimum wage policies in China affect firm employment over the 2000-2007 periods. Using a novel dataset of minimum wage regulations across more than 2,800 counties matched with firm-level data, we investigate both the effect of the minimum wage and its policy enforcement tightening in 2004. A dynamic panel (difference GMM) estimator is combined with a “neighbor-pairs-approach” to control for unobservable heterogeneity common to “border counties” that are subject to different minimum wage changes. We show that minimum wage increases have a significant negative impact on employment, with an estimated elasticity of -0.1. Furthermore, we find a heterogeneous effect of the minimum wage on employment which depends on the firm's wage level. Specifically, the minimum wage has a greater negative impact on employment in low-wage firms than in high-wage firms. Our results are robust for different treatment groups, sample attrition correction, and placebo tests.

Keywords: WP; firm employment; tertiary industry; dependent variable; employee wage; labor market; state firm; China; employment; minimum wages; policy reform; city variable; firm data; employment estimation; end-of-month number; minimum wage policy reform; firm hiring; minimum-wage determinant; Wages; Wage adjustments; Wage policy; Global (search for similar items in EconPapers)
Pages: 47
Date: 2014-10-16
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

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Working Paper: Minimum wages and firm employment: evidence from China (2014)
Working Paper: Minimum Wage and Firm Employment: Evidence from China (2014)
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