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.
|Publication status||Published - 23 Oct 2020|
|Event||2020 Financial Management Association Virtual Conference - |
Duration: 19 Oct 2020 → 23 Oct 2020
|Conference||2020 Financial Management Association Virtual Conference|
|Abbreviated title||2020 FMA|
|Period||19/10/20 → 23/10/20|
Bibliographical noteWe 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.
- Minimum Wage
- Capital-labor Substitution