Minimum Wage and Corporate Investment: Evidence from Manufacturing Firms in China
53 Pages Posted: 17 Oct 2017 Last revised: 17 Aug 2020
Date Written: August 15, 2020
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 minimum wages increase capital investment. The investment response to minimum wages 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
JEL Classification: G31, J3
Suggested Citation: Suggested Citation