Inadequate Increment: A Review of Minimum Wage Level in Guangdong 2018

Released by the Ministry of Human Resources and Social Security (hereafter MHRSS) of the People’s Republic of China (hereafter China) in 2003, the Minimum Wage Regulation requires labour security administrative departments of all provinces, autonomous regions and municipalities to review and adjust minimum wage levels at least once every two years. The Regulation has since become the backbone in protecting the livelihoods of the vast labour population in China. In Guangdong, cities are categorized into four ‘wage districts’ based on their level of economic development. Each of the four wage districts adopts different minimum wage levels. While the minimum wage level of Type A districts is the highest, the minimum wage level of Type D districts is the lowest in the province[1]. The Human Resources and Social Security Department of Guangdong Province (hereafter GDHRSS) is responsible for regularly adjusting the four different minimum wage levels. But Shenzhen, despite being a city in Guangdong, independently set its own minimum wage level until the middle of 2018, when the city was included in the minimum wage system of Guangdong. Shenzhen, like Guangzhou, is categorized as a Type A city, but Shenzhen still had its own minimum wage level by August 2018.

 

In 2018, the minimum wage level of all regions in Guangdong was adjusted for the first time after since 2015.  Shenzhen also experienced its first raise in the minimum wage under the principle of biennial adjustment. We have been closely following the issue of minimum wage in Guangdong. Through long-term investigation and research, we try to find out whether the wage levels of workers in Guangdong can catch up with the level of economic developments in the province. We have documented the changes in minimum wage levels in different cities in Guangdong province, and in this paper, we will examine whether the Minimum Wage Regulation remains effective in protecting the livelihood of grassroots workers.

 

Comparing Minimum Wage Levels Changes: A Low Level of Rise in 2018

GDHRSS and the Shenzhen Municipal Human Resources and Social Security Bureau adjusted minimum wage levels in July and August respectively in 2018. For regions outside Shenzhen, it was their first raise in minimum wage level since May 2015. In 2017, The People’s Government of the Guangdong Province introduced policies that intend to lower the operation costs of firms and enterprises in Guangdong. Consequently, aiming to “further improve the adjustment mechanism of minimum wage level”, adjustment intervals of minimum wage level was increased from two-year to “triennially adjusted in principle” [2]. As explained elsewhere by us in 2017, this change is legally controversial [3]. And even though the minimum wage level was raised in 2018, the level of increase was significantly lower than the level of increase in previous years.

Adjustment DateType A CitiesType B CitiesType C Cities Type D Cities
1/7/20182100 (11%)1720 (14%)1550 (15%)1410 (17%)
1/5/20151895 (22%)1510 (15%)1350 (19%)1210 (20%)
1/5/20131550 (19%)1310 (19%)1130 (19%)1010 (19%)
1/3/201113001100950850

Table 1: Recent minimum wage level changes in Guangdong. Percentage changes shown in brackets. Source: Human Resources and Social Security Department of Guangdong Province)

 

Adjustment DateMonthly Wage minimum level
1/8/20182200 (3%)
1/6/20172130 (5%)
1/3/20152030 (12%)
1/2/20141808 (13%)
1/3/20131600 (7%)
1/2/20121500 (14%)
1/4/20111320 (20%)
1/7/20101100

Table 2: Recent changes in monthly wage minimum level in Shenzhen

(Percentage changes shown in brackets. Source: Shenzhen Municipal Human Resources and Social Security Bureau)

 

From the figures shown above, the minimum wage level increase implemented in 2018 was the lowest since 2011 in both the Guangdong province and Shenzhen. The minimum wage level of Shenzhen was raised by a mere 3%, narrowly catching up with the inflation rate, of 2.9% [4]. Since the provincial minimum wage level had not been adjusted for three years, the level of minimum wage adjustment in 2018 should consider the inflation rate over a three-year period. But eventually the 2018 adjustment of the provincial minimum wage level was significantly lower than the adjustments made in previous years.

 

In Comparison to Average Wage Levels: Parting Further Away from Reasonable Levels

 

In addition to its level of increase, we should also consider level of minimum wage relative to average wage when determining whether the current minimum wage level is sufficient in protecting the livelihoods of workers. Examining data of minimum wage level in different countries, a study conducted by the International Labour Office revealed that the minimum wage level amounted to roughly 40% of the average wage level. The ILO therefore suggested that this should become a reference point for governments when determining minimum wage levels [5]. In China, the Minimum Wage Regulation recommends that the minimum wage level should be equivalent to 40-60% of the local average wage level. The 12th Five-Year Plan for National Economic and Social Development released by PRC in 2012 also set an objective that the minimum wage level of most regions should reach 40% of the local average wage level [6].

 

Despite these recommendations by by international organizations and governmental bodies, most regions in PRC failed to meet the 40% target within the duration of the 12th Five Year Plan. Among 31 municipalities and provincial capitals, MHRSS estimated only 9 of them reach the 40% target. With the “Supply-side structural Reform” objective later firmly established; the 40% goal is now nowhere to be found in the 13th Five-Year Plan.

 

There is no standard formula in calculating average wage levels in China. Provincial governments calculate and release two different average wage levels. One average wage level is the average wage level of employees working in the so called ‘non-private entities’, including state-owned enterprises, public institutions, Hong Kong/Macau/ Taiwan enterprises and foreign enterprises. Another wage level is the average level of employees working in all private limited liability companies.  By the end of 2017, among the 63.41 million employed population in Guangdong, 37.2 million fall into the non-private entity category, while 13.69 million fall into the private entity category. Since the former category is used when the local government determines the level social benefits and public costs (e.g. severance payments, social insurance premiums), in the following discussion, the figures of the average wage level are figures of the ‘non-private entities’ employees category.

 

 20142015201620172018
Average Wage LevelMinimum Wage LevelRatioAverage Wage LevelMinimum Wage LevelRatioAverage Wage LevelMinimum Wage LevelRatioAverage Wage LevelMinimum Wage LevelRatioAverage Wage LevelMinimum Wage LevelRatio
Type A Cities6,1871,35025.05%6,7641,89528.02%7,4251,895
25.52%8,2181,89523.06%9,3202,10022.53%
Type B Cities4,565.21,31028.98%5,036.71,51030.21%5,3371,51028.54%5,930.71,51025.83%6,494.81,72026.66%
Type C Cities4,098.51,13027.66%4,587.51,35029.47%4,929.71,35027.54%5,502.21,35024.59%6,028.51,55025.76%
Type D Cities3,849.41,01026.34%4,279.21,21028.43%4,820.51,21025.33%5,170.41,21023.60%5,744.91,41024.74%
Shenzhen6,0541,80829.86%6,7532,03030.06%7,4802,03027.14%8,3482,03025.52%9,3092,20023.63%

Table 3: Average wage levels, minimum wage levels, and ratios of wages in Guangdong in between 2014 and 2018 (Expressed in RMB per month). (Source: Human Resources and Social Security Department of Guangdong Province)

Figure 1: Minimum wage level in proportion to the average wage level in Guangdong Province, 2014-2018.

 

As illustrated above, the provincial minimum wage was not raised between 2015 and 2017. And since the average wage level continued to increase, there was a notable drop in the ratio of average wage level to minimum wage level. Minimum wage level in Shenzhen was raised once in 2017 according to the biennial adjustment principle, but it did little to stop the ratio of average wage level to minimum wage level from decreasing.  As shown by our data, minimum wage levels of all cities in Guangdong fail to reach 40% of the local average wage level, with the highest only amounting to 30.6%. The situation has been worsened by the freeze in minimum wage level adjustments before 2018, leading the ratio to drop to a new low of 23%.

 

After the adjustment in 2018, meagre rises in the ratio could be observed in Type B, Type C and Type D cities, with increases between 0.8% to 1.17%. The adjustments were merely catching up with the increase in social average wage, with very limited signs of improvement. On the other hand, the adjustments failed to reverse the trend of falling minimum wage to average wage ratio in Type A Cities, Guangzhou and Shenzhen.

 

The steady decrease in ratio not only shows that the recommendations found in the Minimum Wage Regulation has not been implemented, but also means that the level of wages of grassroot workers cannot catch up with the growth rate of the society. If we consider the working hours of grassroot workers, it is clear that they live under immense pressure. In 2017, we investigated the living expenses of grassroots workers in Guangzhou, Huizhou, Dongguan and Heyuan. We found that although they could earn enough to make ends meet, their quality of life is low and they needed to work overtime for 9 to 20 hours every week [8].

 

A Stagnant Minimum Wage Level Cannot Narrow the Wealth Gap

Apart from ensuring basic livelihood needs of workers, minimum wage levels should also help narrow the wealth gap, so that workers can all enjoy the fruits brought by economic development. This is compatible with the government’s objective to transform China into a ‘moderately prosperous society’ by 2020. The ILO suggested that a minimum wage level should be adjusted regularly, otherwise workers cannot enjoy the benefits brought be development and the wealth gap would become wider. [9] The Central Government has also established an income redistribution mechanism many years ago. This aim of this mechanism is to narrow the unreasonable wealth gap by raising income level the low-income group and control income levels of the high-income group.

 

However, as the economic growth has slowed down, the government has been facing more pressure to relieve the operation costs of private enterprises. This led to an emphasis on supply-side structural reforms. The Guangdong Provincial Government therefore did not increase the minimum wage between 2015 and 2018, and the problem of wealth inequality has become worse.

 

 Low income familiesLower Medium Income families Medium income families Higher medium income familiesHigh Income families
201717161.46 (7.80%)30134.80 (6.06%)39729.82 (5.52%)51506.77 (9.64%)82140.93 (10.35%)
201615919.53 (9.05%)28413.10 (11.87%) 37652.49 (10.84%)46976.99 (9.12%)74437.05 (7.39%)
201514598.16 (13.84%)25397.51 (13.53%) 33971.07 (13.16%)43051.04 (7.37%)69313.20 (3.07%)
201412822.8622371.530020.9640097.367250.73

Table 4: Disposable annual income of urban residential families categorized according to income

(RMB, percentage changes hown shown in brackets). Source: Guangdong Bureau of Statistics

 

With reference to Table 4, it can be seen that, in 2015, when the minimum wage level was adjusted, low-income, lower medium and medium income families experienced a larger increase in income than the higher income groups. But when the minimum wage level was not increased in 2016 and 2017, the rate of increase in income between all income groups became similar. Between 2016 and 2017, the increase in income among the low-income group was 17.56%, and the figure was 16.95% for medium income families. Both of these figures are lower than the 18.51% increase enjoyed by high-income families. It is obvious that, during the periods when minimum wage levels were frozen, the wealth gap continued to widen.

 

A Low Level of Minimum Wage Cannot Benefit Many Workers

An effective minimum wage should help raise the income of a significant proportion of workers, thus preventing the free market mechanism to drive wages down to an unreasonable level. According to the ILO, when the UK introduced its minimum wage in 1999, 9% of the total working population received a direct pay rise. In France, about 17% of the working population earn their wages around the level of the minimum wage [11]. But in China, according the ‘guidance wage levels’ released by the MOHRSS in 2018, the minimum wage has only limited benefits in terms of directly raising the wages of workers.

 

The ‘guidance wage levels’ is a set of wage statistics compiled by HRSS of different regions based on an instruction from the central government given in 1999. Each year, the authorities sample different enterprises to investigate their wage levels before formulating wage statistics. Enterprises sampled include both private and non-private enterprises, but salaries of civil servants and public institutions are not considered in the calculations.  Although the guidance wage levels are not tied to any social security payment calculations, they do reflect wage levels of different occupations. It is important to note that the MOHRSS’ publishing of guidance wage levels is based on considerations including but not limited to the general wage increase in the occupation. In Shenzhen, for example, the guidance wage levels of low and medium-income workers are upward-adjusted levels. This is deemed as a measure of encouraging enterprises to adjust wages of low-income staffs at a larger rate, in order to contain social income inequality.

 

CityNumber of occupationsNumber of occupations with median of their guidance wage levels lower or equal the in 2018 minimum wage levels
Guangzhou2501
Dongguan4222
Huizhou3281

Table 5: The Relationship between the Median of Guidance Wage Levels  and Minimum Wage Levels in Three Guangdong Cities in 2018

(Source: Guangzhou Municipal Human Resources and Social Security Bureau, Human Resources and Social Security Bureau of Dongguan, Human Resources and Social Security Bureau of Huizhou)

 

We have analysed the guidance wage levels of Guangzhou, Dongguan and Huizhou in 2017. We decided to focus on the medium, not the average, of guidance wage leves to reflect the conditions of the majority of workers. Since the official statistics include a large number of occupations, our analysis focuses on occupations with more grassroots workers. Sometimes records of different regions are presented in annual wages in the official reports, but we have converted these data into monthly wages.

 

Our findings indicate to us that there were only a handful of occupations with wage levels close to the minimum wage levels. In Guangzhou, for example, the minimum wage level was 2100 RMB, but the guidance wage levels of most occupations amount to 40,000 RMB annually– roughly a monthly salary of 3,000 RMB. According to official statistics, wages of workers excluding overtime pay in Guangzhou, Dongguan, Huizhou and Heyuan all exceed the minimum wage level. Minimum wage levels are clearly too low. They can hardly help grassroots workers in keeping up with social improvements.

 

Conclusion and Recommendation

40 years of Reform appears to have improved the livelihoods of workers in Guangdong, many consumer products that were workers used to find unaffordable are now affordable to them. The economic downturn in recent years, however, put these frontline workers under immense pressure as the government helps relief operations costs of enterprises. Educational, housing and medical expenses are now heavy burden for these workers. Using the benchmark of 40% of the local average wage level, in our 2017 investigation, we have recommended the government to set minimum wage levels of 2018 as follows: RMB 2,970 in Guangzhou, 1,922 in Dongguan, 2,159 in Huizhou, and 1,883 in Heyuan. Right now, a significant gap still exists between our recommendation and the official minimum wage level.

 

According to the social average wage levels in Guangdong Province released in 2019, the average wage in the aforementioned cities are respectively: 9,320 RMB in Guangzhou, 5,828 in Dongguan, 6,470 in Huizhou and 5,745 in Heyuan. Applying the same method of estimation, an adequate minimum wage level in those four cities should be RMB 3,728, 2,331, 2,588 and 2,298 respectively.

 

We hereby call for the Guangdong government to re-evaluate the policy of triennial adjustment of the minimum wage levels. They should resume biennial, or even annual adjustment of minimum wage levels as soon as possible. The increase in the frequency of adjustment will ensure the income of workers can catch up with inflation levels. Such adjustments will also prevent policy implementation from breaching the Minimum Wage Regulation.

 

For many years, in Guangdong, minimum wage levels adjustments were made in the first half of the year. In years 2010, 2013 and 2015, adjustments were made in May; adjustment was made in March in 2011; and in April in 2018. Although there are not rules that regulate the timing of adjustments, the practice of adjusting minimum wage level in the first half of the year can allow both workers and enterprises to make prepares psychologically. We recommend the government to follow past practices, and adjust the minimum wage level in mid-2019.

 

In the meantime, it is necessary for the Guangdong government to reaffirm the function of minimum wage level in improving the living quality of low-income workers. When setting minimum wage levels in 2019, besides considering price index such as CPI, the authorities should also pay attention to the needs of the grassroots workers, and recognize the problem of the growing wealth gap in the province. The government should improve income levels of workers and narrow the wealth gap through continuing to increase minimum wage levels. For all cities, their minimum wage levels should not be lower than 40% of the average monthly wages of non-private sectors employees. In the long term, the government should introduce measures so that the minimum wage level can reach 60% of the average monthly wages in the future.

 

To sum up, everyone should enjoy the benefits of development when there is economic growth. When there are difficulties, it is the obligations of the government to ensure that the burden is shared by both enterprises and employees.

 

[1]For a more comprehensive document of city categorizations, please refer to:《廣東省人民政府關於調整我省企業職工最低工資標準的通知》(粵府函〔2018〕187號)

[2]《广东省人民政府关于印发广东省降低实体经济企业成本工作方案的通知》,粤府〔2017〕14号,2017-02-24 http://www.gd.gov.cn/gkmlpt/content/0/145/post_145863.html

[3]《關於2017年廣東省最低工資連續凍結三年的意見》,九家香港民間團體,2017-04-03 http://www.workerempowerment.org/zh/%E6%94%BF%E7%AD%96%E5%80%A1%E8%AD%B0/348

[4] The Shenzhen Municipal People’s Government raised the minimum wage level in August 2018. According to figures provided by the National Bureau of Statistics Survey Office in Shenzhen, the CPI compared to the same period the previous year was 2.9%, just 0.1% lower the adjustment rate of minimum wage level.

[5]ILO (2008). Global Wage Report 2008/09 (Geneva).

[6]人力資源社會保障部等,《促進就業規劃(2011—2015年)》,2012-02-09 http://theory.people.com.cn/BIG5/17063391.html

[7] 《最低工資漲得太快了嗎》,人民網,2016-03-25 http://politics.people.com.cn/n1/2016/0325/c1001-28225383.html

[8] 《2017年广东省四类地区工人工资与生活开支调查报告》,勞動力,2018-01-22 http://www.workerempowerment.org/zh/%E8%AA%BF%E6%9F%A5%E5%A0%B1%E5%91%8A/428

[9]ILO (1970). Minimum Wage Fixing Recommendation, 1970 (No. 135), Geneva.

[10]《提低、扩中、控高,收入分配改革如何提速?》,人民網,2014-03-04http://cpc.people.com.cn/pinglun/n/2014/0304/c241220-24525025.html

[11] ILO(2012). Social justice and growth: The role of the minimum wage, Geneva, pp.123.