Minimum Wage and Corporate Investment: Evidence from Manufacturing Firms in China

53 Pages Posted: 17 Oct 2017 Last revised: 17 Aug 2020

See all articles by Heng Geng

Heng Geng

Victoria University of Wellington

Yi Huang

Graduate Institute of International and CEPR

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Sibo Liu

Hong Kong Baptist University

Date Written: August 15, 2020

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 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

Geng, Heng and Huang, Yi and Lin, Chen and Liu, Sibo, Minimum Wage and Corporate Investment: Evidence from Manufacturing Firms in China (August 15, 2020). Available at SSRN: https://ssrn.com/abstract=3054453 or http://dx.doi.org/10.2139/ssrn.3054453

Heng Geng

Victoria University of Wellington ( email )

PO Box 600
Wellington, 6140
New Zealand

Yi Huang (Contact Author)

Graduate Institute of International and CEPR ( email )

PO Box 136
Geneva, CH-1211
Switzerland

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Sibo Liu

Hong Kong Baptist University ( email )

Renfrew Road 34
Kowloon Tong
Hong Kong

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