Population Ageing, Labour Market Rigidity and Corporate Innovation: Evidence from China

Research Policy, Forthcoming

40 Pages Posted: 14 Dec 2021

See all articles by Youchao Tan

Youchao Tan

Jinan University - Management School

Xiumei Liu

Sun Yat-sen University (SYSU)

Hanwen Sun

University of Bath, School of Management

Cheng (Colin) Zeng

Hong Kong Polytechnic University

Date Written: December 10, 2021

Abstract

Population ageing leads to labour scarcity and labour market rigidity. Contrary to supply-side economists’ belief that labour market rigidity tends to suppress firm innovation, we provide novel evidence of a positive relationship between population ageing and firm innovation in China. This enhancement effect is greater for firms with higher labour costs, consistent with the argument that labour scarcity encourages labour-saving innovation in response to demographic shifts. In addition, the observed positive effect is particularly pronounced for state-owned enterprises, which are widely acknowledged to be overstaffed with older workers, and firms in industries that pursue Schumpeter-II innovation and engage in more intense research and development. In addition, population ageing helps firms to generate more exploitative (vs. exploratory) innovation. Overall, our findings suggest that firms facing population ageing can adapt their strategies to innovate successfully.

Keywords: Population ageing; Labour scarcity; Labour market rigidity; Innovation

JEL Classification: J11, J13, J21, O31

Suggested Citation

Tan, Youchao and Liu, Xiumei and Sun, Hanwen and Zeng, Cheng, Population Ageing, Labour Market Rigidity and Corporate Innovation: Evidence from China (December 10, 2021). Research Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3982742

Youchao Tan

Jinan University - Management School ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

Xiumei Liu

Sun Yat-sen University (SYSU) ( email )

135, Xingang Xi Road
Haizhu District
Guangzhou, Guangdong 510275
China

Hanwen Sun (Contact Author)

University of Bath, School of Management ( email )

School of Management, University of Bath
Bath
Bath, BA2 7AY
United Kingdom

Cheng Zeng

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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