Minimum Wage and Corporate Investment: Evidence from Manufacturing Firms in China
Published online by Cambridge University Press: 18 January 2021
This article 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 discontinuities in minimum-wage policy 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.
- Research Article
- Journal of Financial and Quantitative Analysis , Volume 57 , Issue 1 , February 2022 , pp. 94 - 126
- © The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington
We thank Renee Adams, Chun Chang, Luke Chu, Jennifer Conrad (the editor), Jan Feld, Richard Freeman, Eric French, Matthew Gustafson (the referee), Wei Huang, Oğuzhan Karakaş, Bibo Liu, Yao Lu, Claudio Michelacci, Marco Pagano, Vincenzo Quadrini, Hélène Rey, Rui Shen, Tao Shen, Qi Sun, Paolo Volpin, Michael Weber, Wei Xiong, Haichun Ye, and the conference and seminar participants at Auckland University of Technology, the Chinese University of Hong Kong (Shenzhen), the Graduate Institute of Geneva, Harvard University, the Labor and Finance Working Group, the 2017 Society for Financial Studies (SFS) Cavalcade Asia-Pacific, Shanghai University of Finance and Economics, the Swiss Finance Institute, and Tsinghua University for their helpful comments. The work described in this article was partially supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China (Project No. T35/710/20R)