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Minimum Wage and Corporate Investment: Evidence from Manufacturing Firms in China

Published online by Cambridge University Press:  18 January 2021

Heng (Griffin) Geng ,
Yi Huang ,
Chen Lin Open the ORCID record for Chen Lin [Opens in a new window]  and
Sibo Liu
Heng (Griffin) Geng
Affiliation:
Victoria University of Wellingtongriffin.geng@vuw.ac.nz
Yi Huang
Affiliation:
Graduate Institute of Genevayi.huang@graduateinstitute.ch
Chen Lin*
Affiliation:
University of Hong Kong
Sibo Liu
Affiliation:
Hong Kong Baptist Universitysiboliu@hkbu.edu.hk
*
chenlin1@hku.hk (corresponding author)
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Abstract

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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 1 , February 2022 , pp. 94 - 126
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

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)

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