Would the rise of minimum wage drive up product prices?

XU Jianwei1 ZOU Jingxian2 MAO Jian3

(1.Business School, Beijing Normal University)
(2.National Academy of Development and Strategy, Renmin University of China)
(3.School of International Trade and Economics, University of International Business and Economics (UIBE))

【Abstract】Would the increase of minimum wage affect price level? By building corporate-product theoretical model, this paper pointed out that changes of minimum wage standard influence not only the firms bounded by minimum wage directly, namely, the inherent effect, but the unbounded firms indirectly, namely the competitive effect, so that its net effect is the sum of the two. In addition, by combining the corporate data and the related goods sales of the sample firms as well as the monthly minimum wage data covering all Chinese county administrative areas during 2007–2011, we established theoretically consistent indices for empirical test. This research found that for every 10% of minimum wage increase, the product price increase caused by the competitive effect and the inherent effect is 0.07% and 0.02% respectively, so the above results are statistically significant and very robust. We also found that the inherent effect is more significant to the firms with wage closer to the minimum wage standard; however, with the increasing market concentration, the competitive effect may become more important.

【Keywords】 minimum wage; price pass-through; competitive effect; inherent effect;


【Funds】 Youth Project of National Natural Science Foundation of China (71303021) General Project of National Natural Science Foundation of China (71573038, 71673028, and 71473054) Beijing Social Science Fund (14JGC100)

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(Translated by LV Chuanyang)


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    [2]. ② For details of taxation survey, see Gao and Mao (2013) and Shen et al. (2016). [^Back]


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This Article


CN: 11-1235/F

Vol , No. 12, Pages 33-45

December 2017


Article Outline


  • 1 Introduction
  • 2 Literature review
  • 3 Theoretical model
  • 4 Data description and econometrical model establishment
  • 5 Empirical results
  • 6 Conclusion
  • Footnote