Minimum wage effects on firms’ R&D investment: Evidence from China

Zhihua Wei, Zerong Ren, Caiyun Zhu, Yisihong Zhou and Xiaowen Liu

International Review of Economics & Finance, 2023, vol. 87, issue C, 287-305

Abstract: This study examines the effect of minimum wage increases on firms' R&D expenditure in China. We find that an increase in the minimum wage significantly increases firms’ R&D expenditure. This positive effect is stronger for labor-intensive firms, non-state-owned firms, and firms with fewer financing constraints and costs. To explore the underlying mechanism, we find that an increase in the minimum wage produces a factor substitution effect and a competitive pressure effect, and also mitigates the negative impact of agency problems and managerial myopia. Our study enriches the literature on economic consequences of a minimum wage and factors influencing firm innovation.

Keywords: Minimum wage; Labor costs; Competitive pressure; Corporate governance; R&D investment (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:87:y:2023:i:c:p:287-305

DOI: 10.1016/j.iref.2023.04.009

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