Complied by Caijing Staff

From Caijing Online

On November 17, the Ministry of Human Resources and Social Security (MHRSS) announced that any increase to the minimum salary will be postponed due to current economic and business conditions. However only four weeks earlier, during a third quarter news conference, the ministry claimed that the minimum salary would be raised.

While the turnaround by the MHRSS highlights the effect of the global economic crisis on the Chinese economy, many still question the reason for the delay. Facing slowdowns of exports and languishing domestic market demand, should the government reduce salaries to ease financial pressure from cash-strapped companies, or should minimum salary be raised to support employees’ incomes? Regarding this question, Caijing online launched their 4th online debate - “Job or Salary?”

When debating ended at 5pm on December 14, 59 percent of participants agreed that protecting jobs was more important, while 41 percent considered protecting salaries to be more important. There was heated debate amongst the participants over what extent a change in minimum salary would affect the level of employment in the market, as well as how it would impact industry and domestic demand.

Let’s take a look at the arguments presented during the debate.

There were many free-market evangelists who argued for letting the market decide the cost of labor. What were the arguments put forward for maintaining the current minimum wage, or even dropping it further?

Their main concern was that increased labor costs would seriously hurt already suffering companies, resulting in increased bankruptcies and unemployment - especially considering that current salary levels are very close to the legal minimum salary. A small increase in minimum salary would affect a large number of companies. Generally agreed was that salary increases should be reasonable and take into account the economic climate, so expectations of a hike in minimum wage during the downturn is unreasonable. Instead employees and employers should cooperate and understand that the burden of the economic crisis should be shared – it was suggested that high-income individuals should also expect increased taxes or caps on wages during this period. Stimulation of domestic demand through fiscal policy measures such as tax cuts and sector-preferential policies were suggested as alternatives to raising wages.

The debate also brought out strong support from Caijing's readers for an increased minimum wage. While they agreed in principal that a higher minimum wage could impact companies’ costs, it was stressed that this would be mostly true for inefficient,  wasteful and polluting industries that should not be the focus of the government's policy support. In any case, it was put forward that the government could effectively compensate for any increased costs by relaxing loan limits, cutting taxes and reducing land costs. Furthermore, weak global demand and not the price of labor – which is already low – is the reason why companies are struggling now. Lowering labor costs further will not go very far in offsetting the lack of overseas demand. For too long the purchasing power of Chinese workers has been going down while the lion’s share of the fruits of their labor goes elsewhere. Increasing minimum wage will have a measurable effect in promoting domestic demand, plus it sends a message of confidence to the markets.

Interestingly, both sides agreed on a number of points – that changing minimum salary will place added pressure on business that the government should not support inefficient industries, and that employment rates should not be the sole focus of the government in this time of crisis. Both those for and against a rise in minimum wage thought that the resultant effects could be compensated by targeted fiscal policies, and that ensuring continued structural reform through promoting domestic demand and high added-value industry should be the core of the government's policy. Of course, in economics there is always more than one right answer, and we can be sure that our readers will be watching closely to see how the decision to postpone changes to the minimum wage will affect the economy.

The debate results in Chinese: http://debate.caijing.com.cn/index/index/did/25