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Does minimum wages affect executive compensation? – Evidence from China

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  • Yao, Wenyun
  • Qian, Yuhang
  • Yang, Hang
  • Xu, Wei

Abstract

Based on the urban minimum wage data in China from 2011 to 2021 and the Chinese listed firm data, this study empirically examined the impact of the minimum wage hike on corporate executive compensation. We found that the increase in the minimum wage significantly increased executive compensation. This conclusion still holds through multiple endogenous analyses. Labor expenditure and investment expenditure are the main mechanisms by which minimum wage hikes lead to increases in executive compensation. The impact of minimum wages on executive compensation is more pronounced in competitive industries and labor-sensitive companies, but less pronounced in companies with stricter internal and external monitoring. Further, we found that a minimum wage hike will reduce pay-performance sensitivity and widens the pay gap between executives and employees.

Suggested Citation

  • Yao, Wenyun & Qian, Yuhang & Yang, Hang & Xu, Wei, 2023. "Does minimum wages affect executive compensation? – Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:pacfin:v:80:y:2023:i:c:s0927538x23001464
    DOI: 10.1016/j.pacfin.2023.102080
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