The consumption response to minimum wages : evidence from Chinese households

The paper evaluates the impact of the Chinese minimum wage policy on consumption of low income household for the period 2002-2009. Using a representative household panel, we find that the consumption response to minimum wage hikes is increasing in the minimum wage share of household income. In particular, we find that poorer households fully consume their additional income. This large unitary consumption elasticity of income is driven by households with at least one child, while childless poor households save two thirds of a minimum wage hike. The expenditure increase is concentrated in health care and education with potentially long-lasting benefi ts to household welfare