Study on the Effect of Minimum Wage Increases in China
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Abstract
This paper studies minimum wage increases in China since the implement of minimum wage guarantee system. This paper compares minimum wage with average wage， per capita annual consumption expenditure of urban households， and points out the defections in minimum wage increases. Then， based on the study above， this paper analyzes the effect of minimum wage increases from three aspects， including the cost of labor， labor productivity and industrial structure.
Key words： Minimum wage； Labor Cost； Labor Productivity； Industrial structure
INTRODUCTION
Since 1994， china has begun to implement minimum wage guarantee system according to the international practice. Now， minimum wage has become a necessary means of government to intervene in the labor market and plays an important role in protecting the low-skilled laborers to get a reasonable payment in China. At the same time， minimum wage increases has effect on labor cost of some enterprises， and promotes the upgrading of industrial structure and labor productivity.
1. ANALYSIS ON MINIMUM WAGE INCREASES IN CHINA
1.1 Minimum Wage Changes of China （1994-2012）
Table 1 shows minimum wage changes in each area in China from 1994 to 2004 since ‘Enterprise Minimum Wage Provisions’ was implemented. In general， minimum wage can be calculated not only by hours， but also by days， weeks or months. The earliest enacted minimum wage is calculated monthly in China， and it can be interconverted to hourly minimum rates. The data used in this study is monthly minimum wage.
As can be seen from Table 3， in Shanxi， Jilin， Heilongjiang， Fujian， Jiangxi， Henan， Hainan， Shaanxi and Qinghai province， minimum wage is higher than per capita consumption expenditure of urban households in 1994. But in 2011， minimum wage was lower than per capita consumption expenditure of urban households in all areas except Heibei， Shanxi， Guangxi and Hainan province， and the difference actually increased. In particular， the difference between minimum wage and per capita consumption expenditure of urban households in Beijing and Shanghai was biggest. These two cities are relatively economically developed areas， and per capita monthly consumption expenditure of urban households is higher. We can see that the situation of workers getting their salary in accordance with minimum wage in these two cities gets worse. The Table 3 also shows that average annual growth rate of minimum wage was slightly higher than that of per capita consumption expenditure of urban households in only 11 areas from 1994 to 2011 As we can see， minimum wage is very low， and some low-skilled workers who get their salary in accordance with minimum wage will get more and more poverty than other residents in these areas.
2. EFFECT OF MINIMUM WAGE INCREASES
2.1 Raising Labor Cost
To some extent， the level of employees’ salary reflects the relative value of their job in the firm. We use U to represent the relative value of a job， and p＼* MERGEFORMAT to represent function pay. From the principle of internal equity of salary system， we can get formula （1）
workers will be attracted by higher wage， so higher wage is an effective method to recruit high-quality workers. Minimum wage increases will raise the overall salary level of Chinese enterprises， which will contribute to a better staff motivation， and change the present situation of low labor productivity in Chinese enterprises.
2.3 Promoting the Upgrading of Industrial Structure Labor is the most important production factor， and the wage of laborers has a significant impact on the industrial structure. In the case of the low cost of labor， enterprises always take the advantage of it to develop labor-intensive industries， and lack of technological innovation. Many Chinese enterprises have depended on the cheap labor resources for a long time. The aim pursued by these enterprises is the low cost rather than technological innovations. Many enterprises are unwilling to spend money on updating technology or improving the overall quality of the workers. Instead， they prefer to hire more cheap labor force and less advanced technology， which causes the weak desire for technological progress and the low capability of independent innovation. The result is that Chinese industry structure has been in a lower level for a long time， and in the bottom of the international industry division. Minimum wages increases will force Chinese enterprises to get out of the “low-technology trap” and update industrial structure.
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