Trade and minimum wages in general equilibrium: Theory and evidence

Xue Bai, Arpita Chatterjee, Kala Krishna () and Hong Ma

Journal of International Economics, 2021, vol. 133, issue C

Abstract: This paper develops a new model with heterogeneous firms under perfect competition in a Heckscher-Ohlin setting. We derive a novel prediction regarding the effect of minimum wages on selection, namely that a binding minimum wage will raise (or lower) TFP at the firm and industry level depending on whether the capital intensity of entry costs exceeds (falls short of) that of production. Exploiting rich regional variation in minimum wages across Chinese counties and using firm level production data, we find robust evidence in support of causal effects of minimum wages consistent with our theoretical predictions.

Keywords: Trade; Minimum wage; General equilibrium; Heterogeneous firms; Selection (search for similar items in EconPapers)
JEL-codes: F1 F14 F16 J38 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Trade and Minimum Wages in General Equilibrium: Theory and Evidence (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:133:y:2021:i:c:s002219962100115x

DOI: 10.1016/j.jinteco.2021.103535

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