Minimum wage and labor force participation of married women

MA Shuang1,2 LI Xuelian3 CAI Dongliang4

(1.School of Economics, Southwestern University of Finance and Economics)
(2.Institute of Economics and Finance, Nanjing Audit University)
(3.School of Economics, Collaborative Innovation Center of Financial Security, Southwestern University of Finance and Economics)
(4.School of Finance, Southwestern University of Finance and Economics)

【Abstract】China will experience a sharp labor force shortage in the next decade. According to the China Household Finance Survey, the cumulative reduction in the labor force in 2014–2018 will be about 26 million people with an average annual reduction of 5.2 million people. The adjustment of the Chinese population fertility policy from the one-child policy in 1980 to the two-children policy in 2014 is a long-term and fundamental measure adopted to increase the labor force supply, but in the short term it is very helpful for studying how to activate the current labor force stock by increasing the participation rate of married women in the labor force. This paper studies the labor force participation rate of married women in China from the perspective of the exogenous adjustment of the county minimum wage standards. Theoretically, for a representative worker, the rise in minimum wage should increase his/her wage but reduce his/her probability of being employed, and the overall effect on expected income depends on the relative size of the two effects of minimum wage. Using micro data from the China Household Finance Survey conducted in 2011 and 2013 as well as the minimum wage standards of each county collected by hand between 2011 and 2013, we investigate the effect of the minimum wage increases on the labor force participation rate of married women. Regression results show that an increase of 10% in the minimum wage standard should significantly increase an employee’s wage by 6% and decrease his/her probability of being employed by 1.2 percentage points. Overall, the main regression results show that an increase of 10% in the minimum wage standard may result in a significant increase in the labor force participation rate among married women by 1.86 percentage points after some external factors, such as individual characteristics, household characteristics, the macroeconomic characteristics of the surveyed counties and districts, time trends and the fixed effects of the surveyed counties and districts, are controlled. A regression analysis of the minimum wage with a probit model or a fixed-effect model and a modified definition of labor force participation or the standardized average wage of the surveyed counties and districts shows that the results remain robust. If an increase of 10% in the minimum wage occurs, then the labor force participation rate among married women increases significantly by 1.6–2.9 percentage points. The increase in the labor force participation rate of married women due to minimum wage increases is mainly reflected in the low-income group of workers. As the minimum wage rises by 10%, the labor force participation rate of married women with the lowest 25% wage should increase by 3.03 percentage points. In contrast, every 10% increase in the minimum wage should lead to a mere of 1.43 percentage point increase in the labor force participation rate of married women with wages between 50% and 75%. The influence on the labor force participation of married women aged 35–44 is most significant. Their labor force participation rates should significantly increase by 3.55 percentage points with every 10% increase in the minimum wage. The labor force participation rate of married women with less than nine years of education should increase by 1.88 percentage points with a 10% increase in the minimum wage. Also, the labor force participation rate of married women from western regions should increase by 6.39 percentage points with a 10% increase in the minimum wage. Compared with married women from non-agricultural households, married women from agricultural households should increase their labor force participation rate more considerably as the minimum wage rate rises. The conclusions of this study have significant policy implications. According to the China Household Finance Survey, there are about 355 million married women aged 16–60 in the country. If the minimum wage were to rise by 10%, the female labor force participation rate would increase by 1.86 percentage points, with a 6.6-million-person increase in the labor force. The increase in the minimum wage standard could substantially alleviate the labor shortage in China.

【Keywords】 minimum wage; married women; labor force participation;

【Funds】 Major Project of National Social Science (14ZDB134) National Natural Science Foundation of China (71503205) Planning Project of Sichuan Social Sciences (SC15B0083)

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    Footnote

    [1]. ① We consider adolescent high school education, with 20 years old as the time node for entering the labor market. In consideration of estimates for different time nodes are not much different, interested parties can request it from the author.

    [2]. ① According to a report published by the McKinsey Global Institute in 2015, in the next 50 years, as China’s demographic dividends gradually disappear, even if production efficiency continues to increase steadily, the economic aggregate will fall into a growth bottleneck.

    [3]. ② Labor force participation rate (LFPR) refers to the proportion of economically active population (people who are working or looking for work) in the working-age population. The labor force participation rate calculated by the proportion of women’s economically active population to the female working-age population is called the female labor force participation rate (FLFPR).

    [4]. ③ If the same statistical caliber as the United States is used, the labor force participation rate of married women is 64%.

    [5]. ① It is worth noting that the minimum wage also has an impact on labor demand, and the existing research conclusions are not uniform. If the conclusion of the literature on that “the rise in minimum wage will curb labor demand” is borrowed, this influence will be further reflected in the narrowing of the gap between labor supply and demand in the context of the transformation of labor supply and demand.

    [6]. ① The grades of the minimum wage vary from province to province. In 2006, the minimum wage in Fujian Province was divided into six grades between CNY 400–650. The minimum wage in Guangdong Province was five grades between CNY 450–780. As time goes by, the grades of minimum wage standard may be slightly adjusted. Before 2003, Guangdong Province implemented the eight grades of minimum wages, and after 2003 it was adjusted to five grades. Each city and county has only a little flexibility in the minimum wage, and is limited to the choice of applicable grades. For example, in 2006, Guangdong Province stipulated that counties under city administration and county-level cities had large differences in economic development levels with urban areas, and they could implement lower-level standards. In China, only a small number of prefecture-level cities determine their own minimum wage standards, such as Beijing, Shanghai and other municipalities directly under the Central Government, as well as Shenzhen and other economic development zones.

    [7]. ② From 1998 to 2007, the national minimum wage standard rose from CNY 221 /month to CNY 558/month, with an average annual increase of only 10.8%.

    [8]. ① For example, in 2009–2010, the minimum wage standard was raised in Chaoyang District of Beijing, Lujiang County of Chaohu City and Gaoming District of Foshan City, while the minimum wage standard of Dazu County of Chongqing City was not adjusted. In 2011–2012, Dazu County of Chongqing raised the minimum wage standard. In contrast, Lujiang County of Chaohu City and Gaoming District of Foshan City used the 2011 minimum wage.

    [9]. ① Comparing the characteristics of married women entering the labor market and not entering the labor market, in general, married women entering the labor market and married women not entering the labor market differ slightly in composition and quality. Among them, 36% of the people entering the labor market are high school education and above, and 34.7% are not entering the labor market. The education difference is not significant. The proportion of married women not entering the labor market who are party members or members of other democratic parties is three percentage points lower than that entering the labor market, but still being 8.2%. From the source, the proportions of inflows of individuals who enter and do not enter the labor market are 10.9% and 10.3%, respectively, and the size is almost the same. The main difference comes from the composition of household registration. Compared with the 61.6% of married women with agricultural household registration entering the labor market, the number of married women with agricultural household registration who have not entered the labor market is only 40.4%, and married women who have not entered the labor market are more from towns.

    [10]. ② Although Xie (2010) examined the implementation of the minimum wage in the migrant workers group, Wang (2013) examined the implementation of the minimum wage before 2010, especially in 2004–2010, and Ye et al. (2015) examined the implementation of the minimum wage in 2009, the literature has almost no inspection of the implementation of the minimum wage since 2010.

    [11]. ① From the existing literature, scholars still debate the relationship between minimum wage and employment. Some studies have found that rising minimum wages will lower employment, such as Ding (2010), Ni et al. (2011), and Ma et al. (2012). Other studies suggest that rising minimum wage standard will promote employment, such as Yang et al. (2015), Li et al. (2010), and Luo (2007).

    [12]. ② Due to space limitations, the relevant regression was not reported. Interested parties can request it from the author. These conclusions have certain discrepancies with the existing literature. Among them, one possible reason is that the dependent variable is the employment rate or the rate of being hired, and the existing literature is mostly analyzed by the number of employed people. The influence of the difference of this dependent variable on the research cannot be ignored to some extent (Neumark and Wastcher, 2008). With the data of 5000 small and micro enterprises collected in the 2015 China Small and Micro Enterprise Survey, the company’s 2015 recruitment plan was used as a dependent variable. The regression results showed that with 10% increase of the minimum wage, the small and micro enterprises that developed the recruitment plan were significantly reduced by three percentage points, and the number of people planning to recruit has dropped significantly by 2.8%, supporting the conclusion in the current literature that “the minimum wage rises to reduce employment demand.”

    [13]. ① This paper takes the proportion of individuals whose pre-tax wages are lower than the minimum wage of districts and counties as a substitute for the implementation of minimum wage.

    [14]. ② The rise in the minimum wage has the greatest impact on married women, followed by married men, while the impact on unmarried women and unmarried men is not significant. Based on the mechanism of expected income and retained wages, the difference of conclusions may be related to the following three factors. First, the minimum wage has a heterogeneous impact on the wages and employment probability of different groups (Ding, 2010; Jia and Zhang, 2012; Liu et al., 2012), which led to differences in the changes in expected income of different groups. According to the regression of this paper, for every 10% increase in the minimum wage, men’s pre-tax total wages rose by 5.9%, while women’s wages rose by 9.1%. From the perspective of employment probability, the rise in the minimum wage standard also makes women’s employment probability significantly higher than men by two percentage points. Second, there is a significant difference in wage elasticity between different groups of labor supply. For example, Zhou (2015) showed that the labor supply elasticity of married women and married men is significantly greater than that of unmarried women and unmarried men. Third, there are differences in the existing labor force participation rates of different groups. Compared with married men, the labor force participation rate of married women has a large room for increase.

    [15]. ① This paper matches according to 1:4.

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This Article

ISSN:0577-9154

CN: 11-1081/F

Vol 52, No. 06, Pages 153-168

June 2017

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Article Outline

Abstract

  • 1 Introduction
  • 2 Literature review
  • 3 Minimum wage system of China
  • 4 Data and variable
  • 5 Minimum wage and labor force participation of married women
  • 6 Heterogeneity of the impact of minimum wage on labor force participation of married women
  • 7 Conclusions and policy implications
  • Footnote

    References