As is documented by the central government in China, the provincial governments are legally empowered to set the local minimum wage standards, and the power of standard adjustment is authorized to the subordinate governments (Huang, Loungani, & Wang, 2014). Interestingly, we could also see that the average total factor productivity of China's A-share listed companies has gone up by 0.47 from 6.06 in 2001 to 6.53 in 2019, 6 though the TFP of enterprises once has experienced a small drop.įirst of all, we examine the average effect the increase of the minimum wage standard has on firm productivity. And meanwhile, the annual gross domestic product at the country level has increased at 12.94% per year from 2001 to 2019. The annual growth rate of the minimum wage is 9.45% on average. 1, the average minimum wage standard has grown from 358.28 yuan (RMB) in 2001 to 1819.38 yuan (RMB) in 2019 in China. The minimum wage standards were adjusted 1.19 times on average by the provincial governments from 2001 to 2003, 5 and were tuned one more time from 2004 to 2006 than before. As a result, the minimum wage system was widely implemented all over mainland China since the Tibet Autonomous Region set standards for the first time in November 2004. 4 The Ministry of Human Resources and Social Security of the People's Republic of China (“MHRSS” for short, hereinafter) announced a normal regulation and a package of administrative measures in 20, respectively, with the aim of improving the implementation of the minimum wage system and strengthening its supervision. 3 And since then, 30 provinces in mainland China set local minimum wage standards. The minimum wage system in China was normally established by laws in 1995. Hence, we focus on what impact higher minimum wage has on firms' production, and how the enterprises response to this external compulsive increase in labor costs, in order to provide micro evidence for the causal relationship between poverty alleviation and economic growth in China and give some detailed explanations. But it is argued whether higher minimum wage has a negative or positive effect on corporate performance (Badaoui & Walsh, 2022 Hau, Huang, & Wang, 2020 Mayneris, Poncet, & Zhang, 2018 Rizov, Croucher, & Lange, 2016). The minimum wage system is one of the projects of poverty alleviation, and is exogenous to the private department. However, extant researches pay more attention to the macro effect of China's poverty alleviation projects, while a few of studies explored the micro effect on individual decisions (Aaronson, Agarwal, & French, 2012 Coviello & Deserranno, 2022), and corporate behavior (Bell & Machin, 2018 Geng, Huang, Lin, & Liu, 2022 Gustafson & Kotter, 2022 Li, Lim, & Xu, 2022). This phenomenon in China has shed light on a new balance between poverty alleviation and growth. Hence, it is the issue we focus on what impact the minimum wage hikes have on firm productivity, and how the enterprises respond to this compulsive increase in labor costs.Īccording to a speech by the President Xi Jinping, 2 there are about 100 million residents having get out of poverty until 2020 in China, while the gross domestic product has kept growing. This has become one of the most important problems for global development in the current era since the dual goal of economic growth and poverty reduction has been chased by most of the poverty alleviation policies. However, it is argued whether economic efficiency can be maintained or not when social welfare is improved with the increase in minimum wages. It is revealed that the minimum wage hikes have the positive response of income distribution (Boadway & Cuff, 2001 Yamada, 2016) and the improvement of social welfare (Gudibande & Jacob, 2020), but have negative effects from high-skilled employee losses to inefficiency (Adelman & Morris, 1973 Matsuyama, 2000 Ray, 2010). The minimum wage system is a common system across the world with the aim of ensuring that the floor level of wages can meet for the basic household requirement (Lee, 1999 Mansoor & O'Neill, 2021 Sotomayor, 2021 Yamada, 2016). Income inequality is viewed as one of the major factors accounting for poverty (Foster, Greer, & Thorbecke, 1984 Iniguez-Montiel, 2014 Palomino, Rodríguez, & Sebastian, 2020). The United Nations has been listing the poverty reduction as the Top One goal in the MDGs and the SDGs 1 since 2015.
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