Minimum Wage Effects On Income Distribution

What impact do minimum wage standards have on employment? And can theymake income distribution much better? These are what scholar circle most concern atpresent. We try to start from labor supply angle and take micro-econometric methodto analysis labor supply trait in this research. And then build a micro-simulationmodel based on labor supply behavior to simulate income distribution effects whenminimum wage increased. All the data are from China General Society Survey in2006.We first comb the theory and empirical researches on minimum wage. Byreviewing domestic and foreign researches on minimum wage, we found that there issome improvement room for domestic scholars, especially researches from laborsupply side. Though a deep-understanding on labor supply is an effective andnecessary way to study minimum wage effects on labor market, due to the data andmethods limitation, it is still a relatively weak link in the current researches in China.So we’d like to start from this angle, and discusses the minimum wage effects onlabor market.Then we build a binary choice model to find out what personal propertiesdetermine whether one is affected by minimum wage increase. It turns out that thevulnerable groups have relatively low level of education in China. Besides, olderfemale workers are more likely to be affected, male workers around40years oldaffected the least, the affected probability for younger or older male workers increaseaccordingly.Third, we estimate the wage determined and labor participation equation formale and female groups who have the above character respectively. And calculatetheir wage elasticity of labor supply. We find that the elasticity of female workers ishigher than male. It means when minimum wage standard raise, more women join inthe labor market than men. So we can pay attention on job supply for low-skilledwomen when making relative supporting policies. Besides, we find that effects of education are more significant on women’s labor participation and wagedetermination than men. But effects of technical titles on wage determination aremore significant for men.At last, in order to simulate the minimum wage effects on income distribution,we build a micro-simulation model based on labor supply behavior. We find that theincrease of minimum wage will bring a raise in the number of men and women laborforce. According to different assumptions on whether the employer will provide allworkers wages without discrimination, we simulated in different conditions. Theresults prove that increases in minimum wage will reduce the inequality of incomedistribution, and the stronger the policy enforcement, the bigger the effect. Besides,effect of policy enforcement is greater than the effect of minimum wage rise extentitself.This research is an effective way to a better understanding of the low skilllabor’s supply and wage determination. It provides a reference for making minimumwage policy and relevant supporting system, and has a great theoretical and practicalsignificance.