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Minimum wage and entrepreneurship: Evidence from China

Dongmin Kong, Ni Qin and Junyi Xiang

Journal of Economic Behavior & Organization, 2021, vol. 189, issue C, 320-336

Abstract: This paper investigates the effects of minimum wage (MW) policies on entrepreneurship by using all contiguous county-pairs in China that straddle prefecture borders. We find that the MW significantly and negatively affects entrepreneurship, and the results are robust to a battery of tests based on different specifications. A plausible mechanism might be the crowd-out effect of increase of labor cost, given that our findings are particularly strong in labor-intensive industries, in areas with higher labor costs or low-level access to finance. Overall, this study highlights the negative effects of minimum wage labor policy on entrepreneurship, which have yet to be fully understood.

Keywords: Minimum wage; Labor cost; Contiguous counties; Entrepreneurship (search for similar items in EconPapers)
JEL-codes: G1 J3 L1 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jebo.2021.06.047

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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Handle: RePEc:eee:jeborg:v:189:y:2021:i:c:p:320-336