Saturday, February 7, 2015

Raising the Minimum Wage Weeds Out Poor Working Conditions: An IMF Study Looking at China (含中文版)

Photo: Adjusting the minimum wage upward. Credit: Fufang Network.


A friend of mine (and IMF economist) shared a 2014 IMF study with me on the effects of raising the minimum wage in developing countries, using China as a case study. The study, called "Does Raising the Minimum Wage Hurt Employment? Evidence from China", delivers the following upshots: (1) "a 10% increase in the minimum wage lowers employment by 1%" and (2) "in low-wage firms, raising the minimum wage lowers employment but raises wages more than in high-wage firms."

My take on this data: the employment lost from a higher minimum wage probably includes contracted temp workers or short-term workers, which are not really steady employment and usually include a number of other harmful labor practices, such as a lack of labor contracts or mandated social benefits, underage or child labor, unpaid work and overtime wages, etc. In short, assuming effective enforcement, raising the minimum wage weeds out some exploitative conditions and leaves more stable, fair employment in its place.