How has the minimum wages or rent controls effected the economy of the country? Explain what the minimum wage is an example of. Discuss if you think the government should be involved in establishing laws for setting the minimum wages or rent controls.
According to the textbook, minimum wage makes it illegal to pay less than the specified bottom hourly rate (Greenlaw & Shapiro, 2018). The minimum wage is an example of a price floor, as soon as according to the law it is the lowest level of payment which is allowed to pay. This topic is especially interesting to me, which became a reason why I have chosen the following article for this Learning Journal: “What is the minimum wage in China in 2022?”.
This article tells us about the change in the minimum wage in more than twenty provinces in China, where base salaries raised since 2021. You can find the highest monthly living wage in Shanghai, and the highest hourly base pay in Beijing. To be honest, I was extremely surprised to see, that the minimum monthly wage in Shanghai is only RMB 2,590. I personally know many citizens of this city, and their salaries are sometimes 4 or even 6 times higher.
According to this article, there are some indicators that the provincial government must consider when determining the minimum wage standards. They include the minimum cost of basic expenses, social insurance, retail price index, and housing funds (CBBC, 2022). However, it is only a part of the story. China’s economy prospers, and most workers (especially those who are employed by companies invested from abroad) already earn much above this settled minimum wage. Even though it becomes more and more expensive to finance labor in this country, it is still one of the most cost-efficient options. As I have mentioned above, minimum wages are set at different levels in different provinces (regions) of China. This means, that foreign investors can first conduct research, study the market, and find out the labor costs in exact regions. Therefore, base pay can be a useful benchmark to gauge costs of the labor in different provinces.
The fast increase in the level of minimum wages across this country caused a quite controversial effect on the economy of China. On the one hand, it increased the average level of salaries and reduced income inequality, especially the gender pay gap. On another hand, many young people, women, and low-skilled workers lost their jobs (Shi & Lin, n.d.).
China is only on its way to the market economy. This is the main reason, why I believe that the Government should be involved in establishing laws affecting the economy, especially when setting minimum wages or rent controls. Now, there are still several economic issues to be solved, and both local and central governments need to impose new regulations and policies to continue economic growth and fight such issues as corruption and income inequality. Therefore, by setting the minimum wage, the Chinese Government will reduce inequality, increase the income of the poor, and even protect employees with a wage floor.
References
CBBC. (March 3, 2022). What is the minimum wage in China in 2022? Retrieved from https://focus.cbbc.org/what-is-the-minimum-wage-in-china-in-2022/
Greenlaw, S. A. & Shapiro, D. (2018). Principles of microeconomics, 2e. Open Stax Rice University. https://d3bxy9euw4e147.cloudfront.net/oscms-prodcms/media/documents/Microeconomics2e-OP.pdf
Shi L., Lin C. (n.d.). The impacts of minimum wage policy in China. Retrieved from https://www.justjobsnetwork.org/wp-content/pubs/reports/3.pdf