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China Falls Short on Minimum Wage
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"The minimum wage for a Chinese city should be between 40 and 60 percent of the average monthly wage in that city," Liu Kaiming, director of the Shenzhen Institute of Contemporary Observation, said at a seminar on the social responsibility of enterprises held at Peking University on April 22.

Echoing Liu's point, Su Hainan, chief of the Labor Institution under the Ministry of Labor and Social Security, said: "This would be according to international standards, but none of the provinces has applied this standard."

Su added that from an economics standpoint, the minimum wage isn't necessarily the best resource allocation policy because it reduces the demand for labor and increases overall unemployment.

He said: "But when the minimum wage in practice is too low and the poverty gap continues to widen, adopting a fixed minimum wage standard is the best way of protecting the rights of workers, narrowing the income divide, and expanding domestic demand. Our country belongs to the latter situation."

Although there is some semblance of a minimum wage system in China, it is neither uniform across the country nor adequate.

For one thing, there is no unified method of calculation. According to the "Regulations on Minimum Wage" implemented on March 1, 2004, there are three ways in which a minimum wage amount might be calculated. The first one operates on the basis of proportion. Taking a certain cross-section of families with the lowest per capita income, per capita living expenses are multiplied by expenses incurred for supporting a family or aged parents. The second method uses the Engle Coefficient, which is the proportion of expenses on food to a family's total living expenses. The third is the international standard of 40 to 60 percent of the average monthly income.

Most cities use the first two methods of calculation because the third is, quite simply, too straightforward. If they were to use the third method, local authorities at the provincial and municipality level would have no room to move in terms of making adjustments.

Second, discipline is lacking. According to the 2004 Regulations, as long as a laborer does his work as instructed, his employer is obliged to pay him a salary, after the necessary deductions, that is not lower than the local minimum wage standard. In the event of violations of the regulations, the labor security administration can order an employer to rectify the situation within a certain period of time, failing which the employer can be ordered to pay the salary and compensation up to five times the amount owed. 

And therein lies another conundrum. The regulations make reference only to employers. They do not provide for the accountability of local governments if the local minimum wage is lower than the national standard, thereby severely hindering implementation.

Speaking at the China Development Forum 2006 that was held in Beijing from March 19 to 20, Ma Kai, minister of the National Development and Reform Commission, said: "We will try to raise the minimum wage and make adjustments in line with economic developments. Raising people's income is an important way of increasing consumption."

( by Li Xiaohua, May 14, 2006)


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