The Way China Improved Inequality Both in Minimum Wage and Salary

One of the features of today’s world is global salary and wage inequality —the highly unequal distribution of wealth across the world’s citizens. The proportion of workers’ total wages in Gross Domestic Product is an important indicator to measure whether the initial distribution of national revenue is fair or not. The higher the proportion, the greater the share of workers’ wage and salary in the initial distribution of national revenue, and the more equal and fair the distribution will be. In countries with a mature economy, the ratio of labor remuneration is generally between 54% and 65%. For example, in America, the distribution rate was 58.31% in 2000, while the proportion of total wages of employees in Gross Domestic Product in China is always lower.

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Labor disputes caused by unfair income distribution and welfare issues account for more than 65% of labor disputes and have become an important factor affecting social stability. Since the 1990s, national income distribution has been concentrated in the government, enterprises, cities and a small number of people, which is the main reason for the decline in average household income. Workers’ weak position in the labor market also leads to a decline in the proportion of their salaries and wages. Though Low labor costs have long played an important role in economic development in China, the truth is that workers’ wages are depressed.

Unequal pay will lead to the excessive gap between the rich and the poor, which is a serious problem that every country around the world should pay attention to. According to the data from World Inequality Lab, the national income share of the bottom 50% in 2015 was just below 15%, and the share at the top 10% had increased to 41%, which is not so bad between countries but still reflects the unfair distribution. The economical practice all over the world agreed that the unfair distribution of earnings is inevitable in the marketing economy. The effective macro-management by the government can keep such inequity within the socially acceptable range. The following four policies that China has implemented on salary and wage inequality are evaluated.

First, China has raised the minimum threshold for income taxes many times to ease the tax burden on lower and middle-income workers. The normal effect of this policy should be the alleviation of unfair wages and salary because people who earn more pay more taxes and people who earn less pay less or no taxes. Instead, raising the minimum threshold did not help to ease the burden of middle-class families from 1989 to 2000 and from 2010 to 2013. It worked from 2001 to 2009, but only showed little benefit. 

Second, local governments in China raised the minimum wage standards several times from 2011 to 2014. Raising the minimum wage is to protect workers who are in a weak position in the labor market. It is a basic guarantee provided by the government, and at the same time, it keeps the domestic labor market running healthily without the serious conflicts between employees and employers.

A modest increase in the minimum wage will make the income distribution more equal, specifically, a 10% increase in the minimum wage would reduce the Gini coefficient by 3.9%. But the increase beyond a certain limit will cause a negative impact, which means that the rich have more wealth and the poor are poorer. Commonly, this limit value is the equilibrium wage level in a full competition market. In terms of the actual situation of China, the minimum wage standards in different parts of our country are far from reaching the level of equilibrium wage because the annual growth rate of the minimum wage in all regions is significantly lower than that of per capita Gross Domestic Product in China.

Continuing to increase the remuneration of ordinary workers, especially front-line workers, because a reasonable pattern of salary and wage distribution should be in the shape of an olive, with a large middle part and two small sides, namely the very rich and the poor living on subsistence allowances have a small number of the distribution of wealth, and middle-income people make up the majority. Under such a distribution pattern, the situation of unfair income will be certainly alleviated, and the whole society is relatively stable. “Slower growth of labor wages and faster growth of non-labor incomes resulted in widening income inequality. In this situation, national income is distributed more towards higher-income residents groups.”The government needs to reverse the downward trend in the proportion of actual payment of ordinary workers in Gross Domestic Product, making the wage increase of workers catch up with the growth of the national economy and the growth of corporate profits. Therefore, even as exports boomed and jobs were created recently, sluggish wages meant the gains from national income growth went mostly to corporate profits. 

Appropriately raising the minimum wage is worth persisting with, which will help to ease the problems of unequal payment in our country. When the minimum wage is raised, the salary of workers rises and then their consumption will be stimulated, which will also allow firms to expand production, hire more people with long working hours.

In conclusion, the Chinese government has taken a series of active steps to solve the problem of salary and wage gap in China. The four measures currently implemented are analyzed in this essay. First, China has raised the minimum threshold for income taxes many times to ease the tax burden on lower and middle-income workers, but this policy only showed little benefit. Second, local governments in China raised the minimum wage standards several times to protect workers who are in a weak position in the labor market. Third, the minimum amount of money considered necessary to make an adequate living is given to vulnerable people, which is called the subsistence security system. Finally, the Chinese government has spent more on agriculture to increase the farmers’ earnings in a variety of ways to solve the problem of the wage gap in China. For example, there are measures such as direct subsidies, the abolition of agricultural taxes, the development of water conservancy facilities, etc.

Appropriately raising the minimum wage and the subsistence security system is worth persisting with, which will help to ease the problems of unequal payment in our country. A modest increase in the minimum wage will make the income distribution more equal, but the increase beyond a certain limit will cause a negative impact.

29 April 2022

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