Firm Response to Competitive Shocks: Evidence from China’s Minimum Wage Policy

Harald Hau, Yi Huang and Gewei Wang

The Review of Economic Studies, 2020, vol. 87, issue 6, 2639-2671

Abstract: The large regional variation in minimum wage levels during the period 2002–8 in China implies that Chinese manufacturing firms experienced competitive shocks as a function of firm location and their low-wage employment share. We find that minimum wage hikes accelerate the input substitution from labour to capital, reduce employment growth and accelerate total factor productivity growth—particularly among the less productive firms under private Chinese or foreign ownership, but not among state-owned enterprises. The heterogeneous firm response to labour cost shocks can be explained by differences in management practices and suggests that management quality and competitive pressure are complementary.

Keywords: Firm productivity; Capital investment; Minimum wage policy; D24; G31; J24; J31; O14 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (36)

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Related works:
Working Paper: Firm Response to Competitive Shocks: Evidence from China's Minimum Wage Policy (2017)
Working Paper: Firm Response to Competitive Shocks: Evidence from China’s Minimum Wage Policy (2016)
Working Paper: Firm Response to Competitive Shocks: Evidence from China's Minimum Wage Policy (2016)
Working Paper: Firm Response to Competitive Shocks: Evidence from China’s Minimum Wage Policy (2016)
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