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Minimum wage effects on firms’ R&D investment: Evidence from China

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  • Wei, Zhihua
  • Ren, Zerong
  • Zhu, Caiyun
  • Zhou, Yisihong
  • Liu, Xiaowen

Abstract

This study examines the effect of minimum wage increases on firms' R&D expenditure in China. We find that an increase in the minimum wage significantly increases firms’ R&D expenditure. This positive effect is stronger for labor-intensive firms, non-state-owned firms, and firms with fewer financing constraints and costs. To explore the underlying mechanism, we find that an increase in the minimum wage produces a factor substitution effect and a competitive pressure effect, and also mitigates the negative impact of agency problems and managerial myopia. Our study enriches the literature on economic consequences of a minimum wage and factors influencing firm innovation.

Suggested Citation

  • Wei, Zhihua & Ren, Zerong & Zhu, Caiyun & Zhou, Yisihong & Liu, Xiaowen, 2023. "Minimum wage effects on firms’ R&D investment: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 287-305.
    • Handle: RePEc:eee:reveco:v:87:y:2023:i:c:p:287-305
    DOI: 10.1016/j.iref.2023.04.009
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