Causality analysis between living costs and wages

Many researchers agree that there is a strong relationship between wage and living cost, and living cost leads to rise of wage. This paper conducts an empirical analysis on causality between living cost and wage in China using Granger causality test including Unit Root Test, Cointegration and Error Correction Model. results indicate that wage change plays an important role in living cost change, but living cost has unclear effects on wage justification. If Chinese government designs policy about living wage like other nations, a circular up-grading system will form between wages and living cost, wage and living cost will upgrading more rapidly through stimulation each other. Highly paid labors will weaken economic competitiveness of a urban, and therefore having side-effects on urban growth. Moreover, low-wage workers and families will possibly become poorer.