As the income gap grows between China’s rich and poor, the government has promised to boost the minimum wage.
The government plans an increase in the minimum wage of 40 percent of average urban salaries, to be established by 2015.
Government and analysts have been worried lately about the ever-widening disparity in income as a source of potential social unrest and political instability.
According to the Gini index, a formula which measures the distribution of income or consumption spending among individuals or households in a nation’s economy, China has now passed a point of inequality in which social and political instability are more likely.
Minimum wages in China vary depending on the province, with a monthly minimum guaranteed. Shenzhen province currently pays the highest monthly minimum at 1,500 yuan, or about US$240.49 a month. Workers in Beijing generally get paid by the hour, with the hourly minimum wage at US$2.24.
World’s highest minimum wage is Australia’s $16.91 an hour, or US$15.96.
Under China’s new initiative to raise wages, state-owned companies will be required to contribute a larger share of their profits to the government. The government has earmarked the anticipated increase in revenue for social security funding.
Not all economists and analysts believe the boost in wages will stem the tide of dissatisfaction with the current inequalities in wealth.
“The plan suggests the government puts more weight on income growth than on income distribution,” said Zhang Zhiwei, chief China economist at Nomura.
No “explicit target” number for reducing the Gini coefficient has been set by the government, according to Zhang. There is only the government’s goal to “…reduce [the] population in poverty and increase [the] size of the middle class,” he said.
“This probably reflects the difficulty the government expects to have in reducing income inequality and the strong resistance from vested interest groups,” he said.
By odd coincidence, President Barack Obama, in his recent State of the Union address, urged Congress to pass legislation raising the minimum federal wage from $7.25 an hour to $9.00 an hour.