[Working Paper No.15]Juan Yang, Morley Gunderson, Shi Li: The impact of minimum wages on migrant workers’ wages

Yang, Juan; Morley Gunderson; Li, Shi
Published: 2014/2/12 19:25:53    Updated time: 2014/2/12 19:27:31

Abstract: With the continuous increasing of minimum wages in China from 474 yuan in 2004 to 1072 yuan in 2011 on average, the impact of MWs on migrant workers' wages needs to be reevaluated. Contrast to other OECD countries, the regulated MWs in China did not specify the legal working hours. Employers may extend the workers' working hours to compensate the increased costs. This paper employs a large migrant household survey and some municipal data to investigate the impact of MWs increasing on migrant workers' wages by considering the working hours. The results show MWs only have small negative impacts on migrants' employment and its impacts on rural female workers are larger than other groups. What is more, only the employment of rural migrant workers with low qualifications will be affected by MWs' increase, but not urban migrants. Without controlling working hours, MWs' increase will improve rural migrants and West migrants' wages. However, MWs' increase intensifies rural male workers' working hours, therefore it has no significant impact on migrant workers' wages after considering working hours and employment effect.
Keywords: Minimum wages; migrant workers; employment; wages; working hours

 Authors:

    Morley Gunderson, Centre for Industrial Relations and Human Resources, Department of Economics, University of Toronto;

    Shi Li, Business School, Beijing Normal University;

Introduction

With the increasing of income inequality in China, it is an urgent task to increase the income of low wages’ earner. However it is a long debate whether setting up a minimum wages (later abbreviated MWs) standard is an effective way to increase the welfare of low skills workers. The initial purpose of MWs policy is to safeguard low-income workers’ legal rights and helping them obtain a reasonable remuneration. The evidences from U.S. and other OECD countries have contradictory results about the impact of MWs increase to the low incomers’ employment and workers’ wages. Some of the researches on MWs found increasing MWs will have negative impact on low income earners’ employment (e.g. Brown, Gilroy & Kohen, 1982, Neumark & Wascher, 2008); some researches found no significant impact (e.g. Card 1992, Fraja, 1999) and some researchers concluded positive effects from efficient wages’ point of view. MWs will restrain workers’ slack behaviors in work and reduce firms’ monitor costs, which may reduce the total unemployment level (Katz & Krueger 1992，Agenor & Aizenman, 1999).

There are numerous articles evaluate the economic effect of minimum wages in U.S since the passage of the Fair Labor Standards Act of 1938 (Neumark & Wascher, 1992). However only a few researches about China study the problem though the MWs act has implemented for almost 20 years and their results are quite different as well. Some argue there is sufficient labor surplus in rural areas and implementing MWs system may have negative impact on migrant workers’ employment and increase companies’ labor costs in the same time. For example, Ma et. al (2012) and Ding (2010) use the datasets in company level and conclude increasing MWs will have significant negative impact on employment and positive impact on average wages. Luo (2009) using panel data in province level found similar results that increasing MWs will have negative effect on workers’ employment. However the impacts to different economic regions are varied: positive to the East and the West and negative to the Central. Others argue, the MWs is still very low and will not have significant impact on employment. Figure 1 shows the MWs increases from 200 yuan to more than 1000 between 1995 and 2010, but it still at a very low level comparing to average wages. The proportions to average wages were dropped from 45% in 1995 to 30% in 2011, which is much lower than the average level (37%) of OECD countries (refer to figure 2). In addition, Cai (2010) demonstrated China’s labor surplus period is pasted and demographic dividend is dying away. Therefore increasing MWs may not have significant impact on employment. Wang & Gunderson (2012) showed MWs will have negative effect to slow developed areas and non-state-owned sectors only. It has significant positive effects to developed areas and state-owned companies.

In China, there is a special group of workers, their working place is different from their permanent residence (hukou), called migrant workers. If their hukou belongs to rural areas, will be called rural migrants. Rural migrants are located at the end of income distribution and work in a secondary labor market. Comparing to urban workers, rural migrants have low professional skills and educational qualifications resulting their employment threshold and reservation wages are very low. Therefore they face a quite high substitution or unemployment risks after regulating the MWs. It is quite important to find out the impact of MWs on rural migrant workers’ employment and wages in order to evaluate the effect of MWs.

All the researches above mentioned about China use dataset before 2007. In the recent years, Chinese labor market experiences significant changes after 2008 economic crisis. Large amount of migrant workers return to their hometown to work and labor shortage problems are very serious in some Coast areas. In addition, the minimum wages’ standard has a significant increase after 2004 followed by another rise in 2009 (refer to figure 1 for detail), which promote us to reexamine the impact of minimum wages on migrant workers’ employment and income distribution.

The analysis units of most of researches on the impact of MWs on employment are firms, industries or districts. They tried to figure out what are the changes of unemployment rate of the whole industries or areas when MWs increases. This is because most or low income earners in OECD countries obtained hourly MWs wages, instead of monthly MWs wages. When MWs increases, companies may reduce employees or cutting down working hours to save labor costs. For those still employed workers, their corresponding income will increase if working hours are not cut down. However some low skilled workers may face very high risks of unemployment. Therefore economists may not care about individuals’ wages for those still employed, but unemployment rate of the whole districts or industries. While in China, most of full-time employees acquired monthly wages referring to monthly MWs wages. Government did not specify the legal working hours for the regulated monthly MWs wages. When monthly MWs wages increases, employer could extend the working hours to compromise the costs. Therefore whether increasing MWs wages could improve low income groups’ wages, especially rural migrants’ wages need to examined by empirical data.

Previous researches in China use provincial，municipal or company level data, which cannot judge the association between MWs and special group of individuals (such as different gender, different educational level, etc.). This research will employ a large dynamic survey data on migrant workers in 31 province organized by National Population and Family Planning Commission to analyze the impact of changes of MWs on different types of migrant workers’ employment, wages and working hours. 

...