The Effect Of The Minimum Wage On Economic Growth

With China further deepening the reform of income distribution, how to effectively protect and improve the income of workers has become a major issue now. Minimum wage system, as an important labor and social security policy, has been established by legislation. However, there is no consensus about this regulation in academics. Most of past discussions and researches about it focused only on the necessity of implementing the system and its perspective was also confined to the labor market. This article hopes to be able to break the mindset. In the study process, we put aside their arguments and turn to concern the economic benefits of minimum wages. Our purpose is to find its effect on the economic growth on the basis of the reality of our situation, so that we can provide reference for improving the system.In this paper, we firstly examine the present situation of the minimum wage system in our country. Through simple analysis, we found that China’s minimum wages are generally at a low level now, and the distribution of them is unbalanced. This paper, based on the differences of the minimum wages between regions, establishes an endogenous growth model associated with the minimum wage. Through study of the model, we demonstrates that, in the condition of regional demarcation with capital flows, the impact of the minimum wage rise in some region on the growth depends on technical parameters and policy. All other things being equal, the relationship between the minimum wage level and economic growth is an inverted "U"-type curve, namely there is the Kuznets effect. In the empirical research, this paper runs regression on China’s provincial panel data from 2005 to 2011. It verifies the the inverted "U"-type effect in theoretical model and furthermore measures the contribution of minimum wages to the economic growth. In general, an promotion in current minimum wages in our country can produce certain positive role to economic growth. Specifically, one percent increase in the minimum wage enhances per capital GDP by 0.1 percent. In the case of regional research, the contribution rate of the minimum wage to growth in the east is significantly greater than that in the central and western regions. Finally, according to the result of theoretical analysis and empirical test, we put forward some relevant policy recommendations about the implementation of the present minimum wage system in our country.