The Consumption Response to Minimum Wages: Evidence from Chinese Households

SFI Working Paper No. 17-01
with Ernest Dautovic and Yi Huang

Abstract

This paper evaluates the Chinese minimum wage policy for the period 2002-2009 in terms of its impact on low income household consumption. Using a representative household panel, we fi nd support for the permanent income hypothesis whereby unanticipated permanent income increases due to minimum wage hikes are fully spent. The impact is driven by households with at least one child. We infer signifi cant positive welfare effects for low income households based on expenditure increases concentrated in health care and education, whereas a negative employment effect of higher minimum wage cannot be con firmed.

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