Associate Professor Song Ze : Minimum Wage, Cost Price Transmission and the Real Welfare Effect on Households

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(Correspondent: Wang Tianjian) Recently, Associate Professor Song Ze of School of Economics has published a co-authored paper in Economic Research Journal, 6th issue of 2023, as a corresponding author. The paper is titled “Minimum Wage, Cost Price Transmission and the Real Welfare Effect on Households”.

This paper constructs a theory model to illustrate the transmission process of the minimum wage cost between the enterprise and household sector, and utilizes multiple databases covering household survey, supermarket price, and industrial enterprises to study the impact of the adjustment of minimum wage standard on the consumption utility of urban households as well as the price transmission mechanism within this process from the perspective of living cost, and to measure the net welfare change which incorporates the income compensation and the loss of consumption. The study finds: (1) The price transfer behavior of enterprises is the main cause of the loss of household consumption utility, and the increase in minimum wage leads to the increase in enterprises’ level of average wage and labor cost. The cost price transmission elasticity estimated by theoretical model and the price elasticity coefficient of minimum wage obtained by empirical estimation in this paper show that the price transfer behavior of enterprises leads to the increase in the prices of final consumer goods. (2) If the minimum wage increases by 10%, the overall household living cost increases by 2.47%-6.76% per quarter, and the economic living cost increases by 122-334 yuan per quarter, among which the prices of food, shoes and clothes are the most affected. (3) Under the combined effect of income compensation and consumption utility loss, households with the bottom 20% and middle 60% income will obtain benefits of 658 yuan/quarter and 469-556 yuan/quarter, respectively. The findings of this paper are helpful for the improvement of minimum-wage related policy design with multiple measures, and provide reference for promoting the Chinese path to modernization of common prosperity and expanding domestic demand.

Founded in 1955, Economic Research Journal is a national journal of comprehensive economic theories sponsored by the Institute of Economics of Chinese Academy of Social Sciences and administered by Chinese Academy of Social Sciences. It is widely recognized as a top economic journal by universities and institutes in China.