Falling into Poverty or Escaping from it? The Effect of the Minimum Wage in Urban China

We develop a theoretical framework to study the effect of minimum wages on poverty and bring this framework to the data using a detailed individual-level panel dataset combined with information on county-level minimum wages from urban China and both a first-differenced multinomial logit model and a difference-in-differences approach. We show that theoretically the impact of minimum wages on poverty is ambiguous while empirically China’s minimum wages have had a moderate yet significant poverty reducing effect.

Digging deeper, we demonstrate two countervailing mechanisms at work: higher minimum wages help pull some workers out of poverty, while simultaneously pushing a smaller number of workers into poverty. Results are robust to a wide range of sensitivity checks including using various different poverty lines, while subgroup analyses notably show that the effect of minimum wages on poverty is most pronounced for women.

Joint with:
Sylvie Démurger, École Normale Supérieure de Lyon and CNRS
Carl Lin, Bucknell University
Dewen Wang, The World Bank

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