Minimum Wage Hikes, Innovation, and Corporate Investment

Heng Griffin GENG; Yi HUANG; Chen LIN; Sibo LIU

Minimum Wage Hikes, Innovation, and Corporate Investment

Heng Griffin GENG^*, Yi HUANG, Chen LIN, Sibo LIU

^*Corresponding author for this work

Lingnan University

Research output: Other Conference Contributions › Conference Paper (other) › Other Conference Paper › peer-review

Abstract

This paper studies how minimum wage policies affect capital investment using the industrial census of manufacturing firms in China, where minimum wage policies vary across counties. Exploiting minimum wage policy discontinuities at county borders, we find that, following minimum wage hikes, firms increase capital investment, patent outputs, and machine imports. The investment response to minimum wage hikes is stronger for firms that are labor-intensive, that have more room for technological improvement, and that cannot sufficiently pass on labor costs to consumers. A natural experiment based on county jurisdictional changes further assures the causal relationship.

Original language	English
Publication status	Published - 23 Oct 2020
Event	2020 Financial Management Association Virtual Conference - Duration: 19 Oct 2020 → 23 Oct 2020 https://www.fma.org/virtual2020

Conference

Conference	2020 Financial Management Association Virtual Conference
Abbreviated title	2020 FMA
Period	19/10/20 → 23/10/20
Internet address	https://www.fma.org/virtual2020

Bibliographical note

We thank Renee Adams, Chun Chang, Luke Chu, Jan Feld, Richard Freeman, Eric French, Harald Hau, Wei Huang, Oğuzhan Karakaş, Bibo Liu, Yao Lu, Claudio Michelacci, Marco Pagano, Vincenzo Quadrini, Hélène Rey, Rui Shen, Tao Shen, Qi Sun, Paolo Volpin, Michael Weber, Wei Xiong, Haichun Ye, and the conference and seminar participants at Auckland University of Technology, Chinese University of Hong Kong (Shenzhen), the Graduate Institute of Geneva, Harvard University, Labor and Finance Working Group, NBER workshop, SFS Cavalcade Asia-Pacific 2017, Shanghai University of Finance and Economics, Swiss Finance Institute, and Tsinghua University for their helpful comments.

Keywords

Minimum Wage
Investment
Capital-labor Substitution
Innovation

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

Access to Document

http://www.fmaconferences.org/NY2020/Papers/MW_Investment_20200102.pdf

Cite this

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title = "Minimum Wage Hikes, Innovation, and Corporate Investment",

abstract = "This paper studies how minimum wage policies affect capital investment using the industrial census of manufacturing firms in China, where minimum wage policies vary across counties. Exploiting minimum wage policy discontinuities at county borders, we find that, following minimum wage hikes, firms increase capital investment, patent outputs, and machine imports. The investment response to minimum wage hikes is stronger for firms that are labor-intensive, that have more room for technological improvement, and that cannot sufficiently pass on labor costs to consumers. A natural experiment based on county jurisdictional changes further assures the causal relationship.",

keywords = "Minimum Wage, Investment, Capital-labor Substitution, Innovation",

author = "GENG, {Heng Griffin} and Yi HUANG and Chen LIN and Sibo LIU",

note = "We thank Renee Adams, Chun Chang, Luke Chu, Jan Feld, Richard Freeman, Eric French, Harald Hau, Wei Huang, Oğuzhan Karaka{\c s}, Bibo Liu, Yao Lu, Claudio Michelacci, Marco Pagano, Vincenzo Quadrini, H{\'e}l{\`e}ne Rey, Rui Shen, Tao Shen, Qi Sun, Paolo Volpin, Michael Weber, Wei Xiong, Haichun Ye, and the conference and seminar participants at Auckland University of Technology, Chinese University of Hong Kong (Shenzhen), the Graduate Institute of Geneva, Harvard University, Labor and Finance Working Group, NBER workshop, SFS Cavalcade Asia-Pacific 2017, Shanghai University of Finance and Economics, Swiss Finance Institute, and Tsinghua University for their helpful comments.; 2020 Financial Management Association Virtual Conference, 2020 FMA ; Conference date: 19-10-2020 Through 23-10-2020",

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T1 - Minimum Wage Hikes, Innovation, and Corporate Investment

AU - GENG, Heng Griffin

AU - HUANG, Yi

AU - LIN, Chen

AU - LIU, Sibo

N1 - We thank Renee Adams, Chun Chang, Luke Chu, Jan Feld, Richard Freeman, Eric French, Harald Hau, Wei Huang, Oğuzhan Karakaş, Bibo Liu, Yao Lu, Claudio Michelacci, Marco Pagano, Vincenzo Quadrini, Hélène Rey, Rui Shen, Tao Shen, Qi Sun, Paolo Volpin, Michael Weber, Wei Xiong, Haichun Ye, and the conference and seminar participants at Auckland University of Technology, Chinese University of Hong Kong (Shenzhen), the Graduate Institute of Geneva, Harvard University, Labor and Finance Working Group, NBER workshop, SFS Cavalcade Asia-Pacific 2017, Shanghai University of Finance and Economics, Swiss Finance Institute, and Tsinghua University for their helpful comments.

PY - 2020/10/23

Y1 - 2020/10/23

N2 - This paper studies how minimum wage policies affect capital investment using the industrial census of manufacturing firms in China, where minimum wage policies vary across counties. Exploiting minimum wage policy discontinuities at county borders, we find that, following minimum wage hikes, firms increase capital investment, patent outputs, and machine imports. The investment response to minimum wage hikes is stronger for firms that are labor-intensive, that have more room for technological improvement, and that cannot sufficiently pass on labor costs to consumers. A natural experiment based on county jurisdictional changes further assures the causal relationship.

AB - This paper studies how minimum wage policies affect capital investment using the industrial census of manufacturing firms in China, where minimum wage policies vary across counties. Exploiting minimum wage policy discontinuities at county borders, we find that, following minimum wage hikes, firms increase capital investment, patent outputs, and machine imports. The investment response to minimum wage hikes is stronger for firms that are labor-intensive, that have more room for technological improvement, and that cannot sufficiently pass on labor costs to consumers. A natural experiment based on county jurisdictional changes further assures the causal relationship.

KW - Minimum Wage

KW - Investment

KW - Capital-labor Substitution

KW - Innovation

M3 - Conference Paper (other)

T2 - 2020 Financial Management Association Virtual Conference

Y2 - 19 October 2020 through 23 October 2020

ER -