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Minimum wage and enterprise digital transformation: Evidence from China

Author

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  • Huang, Yuhong
  • Cai, Hui

Abstract

The impact of minimum wage policies on technological transformation remains inconclusive. Although the literature suggests that minimum wage adjustments affect corporate innovation, it lacks a focus on the recent rise of digital technological transformation. Using data from Chinese firms, we find that increasing minimum wages significantly hinder digitalization, particularly in regions with stricter enforcement, industries facing intense competition, and firms that are labor intensive, financially constrained, or whose employees possess weak bargaining power. We identify two plausible channels of impact, namely, the production-scale contraction effect and the risk-bearing capacity weakening effect. Furthermore, government incentives for digital adoption help mitigate the negative impact, and the effect of the minimum wage on digitalization is found to be nonlinear. This study highlights that in countries with underdeveloped labor market institutions, stronger labor protection may unintentionally obstruct enterprise upgrading. This suggests that minimum wage policies should balance labor protection with promoting technological progress.

Suggested Citation

  • Huang, Yuhong & Cai, Hui, 2026. "Minimum wage and enterprise digital transformation: Evidence from China," Economic Modelling, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:ecmode:v:155:y:2026:i:c:s0264999325003992
    DOI: 10.1016/j.econmod.2025.107404
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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