IMF: China loses 1% of jobs with every 10% of minimum wage

 

An IMF study on the Chinese labour force attributed a 10% increase of minimum wage led to a loss of jobs by 1%.

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…”,  said Prakash Loungani, advisor in the IMF’s research department and a former Federal Reserve economist.

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Now, even if you were skeptical about the IMF’s intent of the report, ponder a bit on this simple question:

If you were a businessman deciding between outsourcing, or machines to do a piece of work… how would you justify your decision?

Your answer would most probably be based on price.

 

Consider this other question:

If you were an employee choosing between being a security officer or a cleaner, and both pays a basic minimum of $1000… which would your choice be?

Do you see how minimum wage affects labour force imbalance now?

low-wage-work

The IMF study provides revelation on how minimum wage affect emerging market economies. Especially with a country that hires a massive chunk of the planet’s workforce (we hear that it is 25%, but cannot verify this yet).

The report reveals that min-wage policy hits companies hardest at the bottom, those low-value, low-productivity companies. When wages were raised by 10%, employment was eradicated by 1.8%

The minimum wage argument has degenerated into a political weapon that lobbyists and politicians use to broker power between each other. I have certainly lost faith that political leaders are genuine in their quest to lift low-waged workers out of poverty.

To effectively eradicate poverty and to lift the living standard, it takes more than just the mere passing of legislation to enforce a cold statute that businesses can game around with. It takes the building of a strong economic base, the cooperation of unions, employers and administrators, it takes a lot of buy-in over a long period of time (at least longer than an election cycle) before you can solve problems from the root.

Personally, I would like to see politicians and lobbyists seeking out better ideas than the minimum wage.

 

 

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About the author

Tay Leong Tan

Tay Leong Tan is a collective of 3 writers. Tay, Leong and Tan. (Who were you expecting?!) We are enthusiastic about labour issues, economics and current affairs in particular.

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