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How does employment respond to minimum wage adjustment in China?

Published online by Cambridge University Press:  01 January 2023

Chung-Khain Wye Open the ORCID record for Chung-Khain Wye [Opens in a new window]  and
Elya Nabila Abdul Bahri
Chung-Khain Wye*
Affiliation:
Universiti Kebangsaan Malaysia, Malaysia
Elya Nabila Abdul Bahri
Affiliation:
University of Malaya, Malaysia
*
Chung-Khain Wye, Center for Value Creation and Human Well-Being Studies (INSAN), Faculty of Economics and Management, Universiti Kebangsaan Malaysia, 43600 UKM, Bangi Selangor, Malaysia. Email: wyeck@ukm.edu.my
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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.

Keywords

J38J21F16O40Chinaeconomic growthemploymentforeign direct investmentminimum wageproductivity
Type
Original Articles
Information
The Economic and Labour Relations Review , Volume 32 , Issue 1 , March 2021 , pp. 90 - 114
Copyright
Copyright © The Author(s) 2020

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