Does raising minimum wage hurt employment?

RAISING the minimum wage is a polarising issue. One side worries that raising it will lower employment. The other side downplays the impact on employment and plays up the positive impact on the living standards of the poor. Both sides are able to cling to their beliefs as the evidence, much of which comes from high-income ("advanced") economies, is mixed.

The majority of the global labour force, however, is in the emerging markets. Moreover, for a number of these countries, instituting a minimum wage or raising it is squarely on the policy agenda. But little is known about the impacts of minimum wages on employment and living standards in emerging markets.

My recent work with Yi Huang and Gewei Wang tries to fill this gap by studying the impact of minimum wage policies on employment in China. As China accounts for nearly 25 per cent of the global labour force, this evidence is important in its own right; it may also be more relevant for other emerging markets than the…