Discussion Paper Details

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Title: The Consumption Response to Minimum Wages: Evidence from Chinese Households

Author(s): Ernest Dautovic, Harald Hau and Yi Huang

Publication Date: May 2017

Keyword(s): Household consumption, Labor income, minimum wage and Permanent income hypothesis

Programme Area(s): Development Economics, Financial Economics and Labour Economics

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 find support for the permanent income hypothesis, whereby unanticipated and persistent income increases due to minimum wage policy change are fully spent. The impact is driven by households with at least one child. We infer significant 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 confirmed.

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Bibliographic Reference

Dautovic, E, Hau, H and Huang, Y. 2017. 'The Consumption Response to Minimum Wages: Evidence from Chinese Households'. London, Centre for Economic Policy Research.