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MINIMUM WAGES, IMPORT STATUS, AND FIRMS' INNOVATION: THEORY AND EVIDENCE FROM CHINA.

This study explores the heterogeneous effects of minimum wage on innovation of different types of firms. We develop an open‐economy R&D‐based growth model and obtain the following result: raising the minimum wage reduces innovation of firms that use domestic inputs but increases innovation of firms...

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Published in:Economic Inquiry Vol. 59; no. 1; pp. 441 - 459
Main Authors: Chu, Angus C., Fan, Haichao, Furukawa, Yuichi, Kou, Zonglai, Liu, Xueyue
Format: Article
Published: Wiley-Blackwell Jan2021
Subjects:
China
Minimum wage
Technological innovations
Robust statistics
Patents
Online Access:View this record in EBSCOhost
Summary:This study explores the heterogeneous effects of minimum wage on innovation of different types of firms. We develop an open‐economy R&D‐based growth model and obtain the following result: raising the minimum wage reduces innovation of firms that use domestic inputs but increases innovation of firms that import foreign inputs. We test this result using city‐level data on minimum wages and firm‐level patent data in China. In accordance with our theory, we find that raising the minimum wage is associated with more innovation by importing firms and less by non‐importing firms. This result survives a battery of robustness checks.