Who pays for wage rises?

Updated: 2012-01-11 14:31

(China Daily)

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The Shenzhen city government will raise its minimum monthly wage 13.6 percent in February, from 1,320 yuan ($210) to 1,500 yuan, despite warnings from manufacturers that it will put even more pressure on exporters already reeling from a sharp decline in orders from the United States and Europe.

China's economy faces formidable challenges in 2012 as the developed economies remain ensnared in their debt crises and the rebalancing of the economy from export-led to consumption-led growth is still in its early stages.

Raising the minimum wage not only eases wealth inequalities, it also promotes consumption and forces enterprises to improve their management and boost innovation.

But who should pay for an increase in the minimum wage?

There is no doubt that employers should pay for the cost of labor. But the forecast for small businesses, a main driver for economic growth, is fairly gloomy. So it will be counterproductive to place the onus for wage rises solely on enterprises.

Therefore, raising the minimum wage should be accompanied by measures to reduce the tax burden on small and medium-sized enterprises and improve their business environment.

The governments' tax revenue has grown faster than residents' income for years, and the fiscal authorities certainly have the wherewithal to reduce the tax burden on small and medium-sized enterprises.

In this sense, improving the environment for small and medium-sized enterprises is the premise for enabling worker to enjoy the fruits of the country's steady and rapid economic growth.

What is urgently needed now is concrete reforms of the fiscal and taxation system, especially structural tax reductions that will enable small and medium-sized enterprises to meet the higher costs of labor.