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How Does the Minimum Wage Affect Firm Investments in Fixed and Human Capital? Evidence from China

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  • Haepp, Tobias

    (Peking University)

  • Lin, Carl

    (Bucknell University)

Abstract

This paper empirically analyzes the impact of Chinese minimum wage regulations on the firm decision to invest in physical and human capital. We exploit the geographical and inter-temporal variations of county-level minimum wages in a panel data set of all state-owned and all above-scale non-state-owned Chinese firms covering the introduction of the new Chinese minimum wage regulations in 2004. In our basic regressions including all Chinese firms, we find significant negative effects of the minimum wage on human capital investment rates and no overall effects on fixed capital investment rates. When grouping firms by their ownership structure, we find that these results hold for most firms. Foreign-owned firms are an exception to some extent, because the likelihood that they invest in human capital has not decreased in response to the policy.

Suggested Citation

  • Haepp, Tobias & Lin, Carl, 2016. "How Does the Minimum Wage Affect Firm Investments in Fixed and Human Capital? Evidence from China," IZA Discussion Papers 10332, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp10332
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    Cited by:

    1. Langchuan Peng & Xiaxin Wang & Daixin He, 2019. "How Do Minimum Wage Adjustments Affect Wages In China: Evidence Based On Administrative Personal Income Tax Data," Contemporary Economic Policy, Western Economic Association International, vol. 37(2), pages 349-365, April.
    2. Jung-Seung Yang, 2022. "Dynamics of Firm’s Investment in Education and Training: An Agent-based Approach," Computational Economics, Springer;Society for Computational Economics, vol. 60(4), pages 1317-1351, December.
    3. Ren, Yanjun & Li, Hui & Wang, Xiaobing, 2019. "Family income and nutrition-related health: Evidence from food consumption in China," Social Science & Medicine, Elsevier, vol. 232(C), pages 58-76.
    4. Baek, Jisun & Lee, Changkeun & Park, WooRam, 2021. "The impact of the minimum wage on the characteristics of new establishments: Evidence from South Korea," Labour Economics, Elsevier, vol. 72(C).
    5. 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).
    6. Qifan Huang & Castiel Chen Zhuang, 2022. "Training, productivity and wages: An investigation of China's manufacturing enterprises in a privatization era," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 30(2), pages 269-288, April.
    7. Duanmu, Jing-Lin & Norbäck, Pehr-Johan & Lu, Jane Wenzhen & Clegg, Jeremy, 2022. "Contraction under minimum wages? Operational and financial advantages of multinational subsidiaries in China," International Business Review, Elsevier, vol. 31(2).

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    More about this item

    Keywords

    minimum wage; firm investment; fixed capital; human capital;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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