Maxing Out the Minimum Wage

By+Li+Li

As of April 25， nine local governments in China had raised their minimum monthly wage standards by an average of 13.2 percent this year， according to the Ministry of Human Resources and Social Security （MHRSS）.

The nine provinces， municipalities and cities were Chongqing， Shaanxi， Shenzhen in Guangdong， Shandong， Beijing， Shanghai， Tianjin， Shanxi and Gansu.

After the increases， Shanghai still records the highest minimum wage standards in China. The citys minimum monthly wage standard is 1，820 yuan （$291.75）， and the minimum hourly pay is 17 yuan （$2.73）.

Official statistics show that minimum wage increases continue to slow compared to previous years. In 2011， 24 provinces， municipalities and autonomous regions raised their minimum wage by an average of 22 percent. The average increase slowed to 20.2 percent in 2012 and then 17 percent in 2013.

Despite the slowdown， the rise of local minimum wages in general has been faster than that of the GDP and average resident income growth of the nine regions， according to the MHRSS.

An employment promotion plan issued by the Central Government in February 2012 stipulated that local minimum wages are to rise at least 13 percent on an annual basis during the 12th Five-year Plan （2011-15） period. As a result， the minimum wage will hopefully reach at least 40 percent of the average wage level in most areas in 2015.

A guarantee line

As early as 1984， the Chinese Government recognized the Minimum Wage Treaty implemented by the International Labor Organization. However， it was not until 1993 that the first regulation on minimum wages in China was issued by the then Ministry of Labor. In July 1994， a minimum wage system was included as part of the Labor Law. Article 48 of the law states that all types of enterprises in China must comply with their local minimum wage standard.

According to the Opinions on Issues Concerning the Implementation of the Labor Law， which was issued by the Ministry of Labor in August 1995， the minimum wage does not include overtime pay， allowances for working in unfavorable conditions nor the social insurance and benefits that are required by law.

The Ministry of Labor and Social Security， which replaced the Ministry of Labor in 1998，issued a new regulation on minimum wage in 2003. The new regulation， which took effect on March 1， 2004， mandates that the minimum monthly wage for full-time employees and the minimum hourly wage for part-time employees should be adjusted at least once every two years. It also requires that local governments should set the minimum wage according to five factors： the average living expenses for local urban residents， workers social insurance and housing fund contributions， the local average wage， the local unemployment rate and local economic development.endprint

Chinas first minimum wage system was intended to prevent the exploitation of workers especially in the export-oriented processing and manufacturing industries that were flourishing in the country. The minimum wage system effectively increased the income of many workers.

However， the dynamics of the labor market started to change in 2007 after a shortage of factory workers began to loom over many provinces， especially those with large exportoriented enterprises. As a result， employers have voluntarily raised their salaries to attract more workers， making the average wage much higher than the legally required minimum.

At a job fair in Baoshan District， Shanghai， held last February， a local metallurgical equipment engineering company posted a recruitment advertisement seeking 15 welders and 10 turners. The positions offered a monthly salary of 3，500 yuan （$561） to 4，000 yuan （$641）. Despite a promised year-on-year increase of more than 10 percent， the salary still failed to attract enough applicants.

Hu Shizhi， a business commentator on the website of Hong Kong-based Phoenix Tv， wrote an article titled The Foolishness of the Minimum Wage on April 2. Hu argued that if the minimum wage is set below what the market has set itself， it is totally useless； if it is above the market level， it could lead to the redundancies and unemployment for lowest-paid workers， the group of people it was meant to protect. He went on to say that small businesses with meager profit margins wouldnt be able to afford the rises either.

However， in reality， minimum wage rises still lead to the improved economic well-being of middle- and low-income workers.

Xia youguo， a veteran welder at a machinery-manufacturing company in Chongqing， earns between 3，000 and 3，500 yuan （$483 -$565） every month. The local minimum wage was bumped up by 200 yuan （$32） to become 1，250 yuan （$202） at the beginning of this year.

“Although most of my colleagues and I earn a salary higher than the minimum wage， every time the government increases the standard， my employer gives us a pay rise in order to retain skilled workers，” Xia told Xinhua News Agency.

This is the same case for Liu Dong， a migrant worker from Henan Province， who works on a temp contract through an agency at an electronics factory in Shanghai.

Liu， who works eight hours a day for six days a week， earns a monthly salary of 2，800 yuan（$452） excluding overtime. The employer also provides him with meals and accommodation.endprint

Striking a balance

ye Weihong， an official with the Shanghai Municipal Bureau of Human Resources and Social Security， said that employees in laborintensive services industries， such as retail， catering and property maintenance， benefit the most from minimum wage rises.

According to ye， his bureau once worried about an adverse employment effect from minimum wage increases， however， this has not been witnessed. He said that for years， Shanghais unemployment rate has stabilized at around 4.2 percent and a total of 600，000 new jobs have been created in Shanghai each year.

“This shows that our minimum wage adjustments are reasonable and dont exert any negative effect on employment，” ye said.

Nationwide， China created 3.44 million new jobs in cities in the first three months of this year， bringing the urban unemployment rate down to 4.08 percent from 4.1 percent at the end of 2013， according to the MHRSS.

However， complaints about financial burdens in relation to minimum wage rises are growing among business owners.

Jiang yuanlin， manager of an electronic components factory in Shanghai， admitted to the leverage his workers now enjoy during sal- ary negotiation after every minimum wage rise and complained about the extra costs imposed on the company.

“Besides shouldering the pay rises， the company also has to pay higher social security contributions for our workers. This has become an especially big burden for business owners when the economy slows down，” Jiang said.

Su Qun runs a motorcycle parts factory in Chongqing. He said that although Chongqings minimum wage increased by 200 yuan （$32） on January 1， 2014， the factorys compensation package per worker rose by 300 yuan（$48） to cover the consequent hikes in medical insurance premiums， social security insurance contributions and payments for workers on probation.

“Even though I am paying workers much higher than the required minimum wage， I still wish that the minimum wage would not be raised so frequently，” Su said.

In response， Tang Jun， a senior research fellow with the Institute of Sociology under the Chinese Academy of Social Sciences， suggests that the government should give companies tax breaks as financial relief.

Liu Cheng， a professor at the School of Management， University of Science and Technology of China in Hefei， east Chinas Anhui Province， told China News Service that Chinese enterprises， even those in labor-intensive industries， should be able to afford the increased labor costs caused by the minimum wage rise. He said that employee payroll accounts for only 5 percent to 10 percent of the total operational costs of companies in China. “Even after a 20-percent pay rise， the percentiles would only rise to 6 percent to 12 percent， which are still much lower than the corporate human resources expenses in developed countries，” he said.

Liu Cheng agrees with Tang in demanding tax breaks to companies， especially small and medium-sized ones.

“Moreover， the priority task for Chinese companies is not to reduce costs， but to improve their efficiency by adopting new technologies，” Liu Cheng said.endprint