Impact of minimum wage changes on urban Chinese households

GSEM Professor Harald Hau, Ernest Dautović, and Yi Huang co-authored an article published in the top-tier journal The Review of Economics and Statistics. It evaluates the Chinese minimum wage policy’s impact on low-wage households’ consumption from 2002 to 2009. The researchers found that a higher consumption response in households where minimum wage income constitutes a larger share of total income. Poorer households with children tend to fully consume additional income, while childless households save a significant portion. The increase in expenditure due to minimum wage hikes primarily occurs in health care and education, suggesting long-term benefits for household welfare.

Harald Hau received the Sinergia research grant from the Swiss National Science Foundation.

ABSTRACT

The paper evaluates the impact of the Chinese minimum wage policy on consumption of low-wage households for the period 2002-2009. Using a representative panel of urban households, we find that the consumption response to minimum wage income hikes increases in the share of minimum wage income in total household income. In particular, poorer households fully consume their additional income, while meaningful negative employment effects are absent. The large marginal propensity to consume is driven by households with at least one child, while poor, childless households save two-thirds of a minimum wage hike. The expenditure increase is concentrated in health care and education with potentially long-lasting benefits to household welfare.

Access the study: Consumption Response to Minimum Wages: Evidence from Chinese Households

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