The Minimum Wage And The Living Cost Of Urban Households

The goal of the minimum wage policy is to guarantee the income of workers and maintain the basic living standard of low-income workers.With the continuous increase of minimum wage,whether the welfare of the low-income class has been improved as expected? Most studies have examined the welfare effects of the minimum wage in terms of raising average wages and affecting employment based on the labor market,ignoring the possibility that companies might increase the price of products to pass on the raising of labor costs due to the minimum wage,thus pushing up the cost of living for households.In addition,the minimum wage may also have more negative effects on the low-income class through its heterogeneous effects on the cost of living for different products.Therefore,ignoring the impacts of the minimum wage in the product market may overestimate the welfare effects of the minimum wage and thus give wrong opinions on policy adjustments.In this context,exploring the impact of minimum wage in the product market has become an essential issue that needs to be studied urgently.Based on the households’ cost of living,this thesis constructs a cost of living index for households using data from the Urban Household Survey(UHS)in China from 2004 to 2009 to study the impact of the minimum wage on the cost of living of urban households,enriching the domestic research about the impact of the minimum wage on the welfare of households in the product market.The main findings of this thesis are summarized as follows.First,the minimum wage pushes up the households’ cost of living.After controlling for multi-dimensional unobservable factors,every 10% increase in the minimum wage will increase the cost of living index for urban households by0.974%,which is significant at the 1% level and passes the robustness test.Is the minimum wage uniform or preferential in pushing up the households’ cost of living? To explore the question,this thesis conducts a heterogeneous analysis.Through the sub sample regression of each income class,we find that the minimum wage makes the cost of living of the low-income class rise much higher than that of the high-income class.Thus,assuming other factors remain constant,the impact of the minimum wage in the product market will put the low-income class in a more disadvantageous position.Next,this thesis further explores the reasons for the heterogeneous impact of the minimum wage across income classes.Through the sub sample regression of products,we find that the minimum wage has a heterogeneous impact on products.Further examining the heterogeneous impact of the minimum wage on the cost of living of various income classes and products,we find that when the minimum wage leads to the increase of the cost of living of certain products,the increase of such products consumed by the low-income class is greater.However,when the minimum wage leads to the decrease of the cost of living of certain products,the decreased of such products consumed by the low-income class is less.So far,this thesis has found the reason why minimum wage affects low-income class more.Since above findings on the product market differ significantly from those of previous studies in the labor market,this thesis examines the moderating effect of income factors which comes from labor market and finds that the minimum wage compliance rate weakens the increase in the households’ cost of living due to the minimum wage,while the degree of income inequality strengthens it.In addition,this thesis also explores the reasons for the heterogeneous impact of the minimum wage across each product category.The thesis found that a higher share of high-skilled labor in an industry and greater capital intensity of the industry weakens the minimum wage induced increase in the cost of living of products produced in that industry,while greater market power in an industry strengthens it.Finally,based on the above empirical results,this thesis provides several targeted policy recommendations.