The Determinants of China’s Minimum Wage Rates

Ein Vortrag Achim Schmillen (The World Bank) im Rahmen der Seminarreihe des AB Ökonomie am IOS.

In contrast to the effects of minimum wage rates on wages, employment and other outcome variables, the determinants on the setting of minimum wage rates have received relatively little attention in the literature. To contribute to closing this knowledge gap, we empirically investigate the determinants of China’s minimum wage rates. We use a highly disaggregated panel of macro data and the full variation of minimum wages on the county level and a methodological approach that relies on random effects models, spatial Durbin models, and multilevel analyses. We find that strategic interactions between provincial governments results in minimum wage rates in counties of the same administrative county type that are more similar than minimum wage rates in different types of counties, irrespective of whether these countries are neighbors. This finding is robust to multiple variations in the empirical setup and a placebo test based on 250 different randomly generated weights matrices for the spatial structure of our data. Furthermore, we empirically confirm that provincial governments are the key players for setting minimum wage rates, as envisaged by China’s minimum wage regulations. Moreover, we show that the local price level and the GDP per capita are important economic determinants of minimum wage rates. Finally, we find that provincial governments are not uniform in how they weigh these economic variables when setting country-level minimum wage rates.