Increasing the Minimum Wage
As mentioned in a previous blog about China’s New Five-Year Plan, a major initiative being implemented by the Chinese government is trying to increase domestic spending in order to lead away from exporting and towards a more socially and economically sustainable growth model. Part of this initiative involves the increasing of minimum wage.
Wages across the country that have been in place since about 1994 are now rapidly rising across the board, in order to achieve this transition towards a more balanced consumer society. Subject to national policy, increasing wages has been the case for the past three years with annual average increase of about 15-25% annually. Interestingly, rates vary by region and are ultimately calculated and at the discretion of respective local government. Although at local government discretion, rates are calculated apropos to many indicators, including the local housing market and even average estimated quality of living. With these factors in mind, there may be some inconsistencies when following local trends where price is enforced by local officials rather than regional officials.
Minimum Wage & Trends
With wage rates varying from region to region, trends can be identified that correlate with the local housing markets and are relative to the level of development regarding each region. These trends seem to indicate how the better known coastal provinces impose relatively higher minimum wage levels than the other more slow-to-develop western areas. Another indicator or trend that can be seen with wages is in relation to infrastructure. The quality and quantity of infrastructure in a region can also equate to the respective wages mandated by regional governments.
Although minimum wage trends are accurate and apparent, minimum wages are only the legal minimum and many business models and industries must negotiate above those standards in order to have appropriate worker retention. Another factor to consider when considering minimum wages is that employers must also provide compulsory social welfare benefits to its workforce. These benefits similar to minimum wage also correspond to the region and the conditions mentioned above, but can tally a supplementary 40-50% on top of the base salary of each Chinese employee.
Social Welfare is an issue that primarily pertains to employers considering hiring permanent staff in China. One of the main considerations is the New Social Insurance law,
which helps outline the full social security package that must be guaranteed to permanent Chinese employees. The new Social Insurance Law or the “new law” addresses three primary objectives:
Execute more diametrical control over resources supplied to the system
Stringent administration so that companies are coerced to make unabridged contributions
Enhance the all-embracing social security safety net for Chinese denizens
The first two objectives go hand-in-hand and both work together in order to achieve the third and ultimate goal. The reason this is such a large topic and point of interest is because of how the Chinese government is trying to lead away from simply having a cheap labor force and heavy fiscal spending in order to drive the economy. Instead, with increasing wage levels and giving workers social security safety nets, more domestic spending can occur and Chinese households will consequently be less afraid and less inclined to withhold from spending and save their money.
The Five main securities that are now being covered through the welfare system primarily refer to: work-related injury, unemployment and maternity insurance, medical, and pension. The social insurance that is now being provided will resolve the issue of Chinese households saving up in the event that something undesirable happens to a family member and will relieve the fear and skepticism that capital contributed for compulsory pension will still be accessible when they reach retirement age.
Photo Credit: Angiola Rucci
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