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To upgrade or to relocate? Explaining heterogeneous responses of Chinese light manufacturing firms to rising labor costs

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  • Wang, Fei
  • Xia, Junjie
  • Xu, Jiajun

Abstract

This paper studies the heterogeneous responses of Chinese light manufacturing firms to rising labor costs from the perspective of New Structural Economics. Using the first-hand pilot survey data, we find that rising labor costs have been the number one challenge facing firms, and that despite the dominant strategy of technological upgrading, there is a substantial difference in responses across different firms. In addition, we discover that industrial and firm-specific labor intensity are key determinants of the heterogeneous strategies across firms in response to rising labor costs. We conclude that intrinsically more labor-intensive industries and firms are more likely to choose relocation instead of upgrading as a strategy to cope with the rising labor costs.

Suggested Citation

  • Wang, Fei & Xia, Junjie & Xu, Jiajun, 2020. "To upgrade or to relocate? Explaining heterogeneous responses of Chinese light manufacturing firms to rising labor costs," China Economic Review, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:chieco:v:60:y:2020:i:c:s1043951x1930094x
    DOI: 10.1016/j.chieco.2019.101333
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    Cited by:

    1. Chen, Feng-Wen & Xu, Jingwei & Wang, Jiang & Li, Zhilong & Wu, Yongqiu, 2023. "Do rising labour costs promote technology upgrading? A novel theoretical hypothesis of an inverted U-shaped relationship," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 327-341.
    2. Geng, Yong & Liu, Wei & Wu, Yuzhao, 2021. "How do zombie firms affect China’s industrial upgrading?," Economic Modelling, Elsevier, vol. 97(C), pages 79-94.
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    5. Lina Meng & Xiao Xiao & Yinggang Zhou, 2023. "Housing Boom and Household Migration Decision: New Evidence from China," The Journal of Real Estate Finance and Economics, Springer, vol. 67(3), pages 453-479, October.
    6. Jin Wang & Zihan Hong & Hai Long, 2023. "Digital Transformation Empowers ESG Performance in the Manufacturing Industry: From ESG to DESG," SAGE Open, , vol. 13(4), pages 21582440231, October.
    7. Minh Tam Bui & Rumi Miura & Masami Saito & Yusuke Shibata & Keiichiro Suenaga, 2022. "Fragmented Flying Geese (FFG) and Intra-Regional Agglomeration: Towards a Model Explaining Location Shifting of Japanese Multinational Corporations and the Electric Value Chains of ASEAN Economies," Economies, MDPI, vol. 10(10), pages 1-30, September.
    8. Yang, Chih-Hai, 2023. "Strengthening worker benefits or destroying jobs: Effect of the 2008 Labor Contract Law in China," International Review of Law and Economics, Elsevier, vol. 73(C).
    9. Zheng, Liang, 2021. "Job creation or job relocation? Identifying the impact of China's special economic zones on local employment and industrial agglomeration," China Economic Review, Elsevier, vol. 69(C).
    10. Fodouop Kouam Arthur William, 2024. "Navigating the Relocation Trend: The Rising Shift of Multinational Corporations from China to Other Countries," International Journal of Science and Business, IJSAB International, vol. 34(1), pages 62-75.

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