The minimum wage has been regarded as an important element of public policy in reducing
poverty and income inequality. Increasing the minimum wage is supposed to raise incomes for
million low-wage workers, therefore, leading to lowering income inequality. However, there is
no consensus in the existing literature from industrialized countries about whether the minimum
wage has contributed to lowering income inequality. Studying the impact of the minimum wage
on income distribution in developing countries such as China is more complicated due to the
presence of the large informal sectors in urban areas, large pools of surplus labor in the
countryside, and difficulties in ensuring compliance with such legislative initiatives. China has
exhibited rapid economic growth and widening income inequality in recent years. Since China
promulgated new minimum wage regulations in 2004, the magnitude and frequency of changes
in the minimum wage have been substantial, both over time and across jurisdictions. The
growing importance of this topic of the relationship between the minimum wage and income
inequality and its controversial nature have sparked heated debate in China, highlighting the
importance of rigorous research to facilitate evidence-based policy making. We investigate the
contribution of minimum wages to the well-documented rise in income inequality in China over
the period of 2002 to 2009 using county-level minimum wage panel data and a representative
Chinese household survey, finding that the increase of minimum wages has beneficial effects on
the income distribution—particularly reducing the income gap between the median and the
bottom decile—over the period of analysis.