The Impact Of Minimum Wage On Income Inequality Of Urban Residents

Since the reform and opening up, China’s income inequality is widening, and Gini coefficient is at a high level, which has been a serious threat to the harmony and development of economy and society. One of the causes of the problem is that our underlying labors’income at a lower level for long-term. Thus, our country began to implement the minimum wage system since 1993, and promulgated the new minimum wage provision in 2004. Then, setup or increase of the minimum wage really helps to narrow the income inequality?This paper uses the 2002-2006 micro-data of Urban Household Survey as well as macro-data from "China City Statistical Yearbook", and applies fixed effect model to analyze the impact of the minimum wage on the income inequality of urban residents. Then uses the Heckman two-stage method and quantile regression to analyze the impact of the minimum wage increase on employment, working hours and wages for different income groups.The results show that:(1)Improving the minimum wage will help narrow the income inequality of urban residents, but there is a threshold, after exceeding this threshold, the income inequality will widen. (2) There is no significant impact on employment, but with a significant positive impact on working hours and the impact is stronger for low-income group. Then the increase of minimum wage will improve the overall wage level, and the impact is strongest for low-income group as well. The above conclusions explain why the increase of the minimum wage will narrow the income inequality of urban residents.Based on the findings, this paper think that science adjustment mechanism of minimum wage should be established and take effective measures to ensure the implementation of the minimum wage system.