Minimum Wage Hikes, Innovation, and Corporate Investment
60 Pages Posted: 17 Oct 2017 Last revised: 27 Dec 2019
Date Written: August 30, 2019
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
JEL Classification: G31, J3
Suggested Citation: Suggested Citation