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The cleansing effect of minimum wages. Minimum wages, firm dynamics and aggregate productivity in China

Author

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  • MAYNERIS, Florian

    () (Université catholique de Louvain, CORE & IRES, Belgium)

  • PONCET, Sandra

    () (Paris School of Economics (University of Paris 1), CEPII and FERDI)

  • ZHANG, Tao

    () (Shangai University of International Business and Economics)

Abstract

We here consider how Chinese firms adjust to higher minimum wages and how these affect aggregate productivity, exploiting the 2004 minimum-wage reform in China. We find that higher city-level minimum wages reduced the survival probability of firms which were the most exposed to the reform. For the surviving firms, thanks to significant productivity gains, wage costs rose without any negative employment effect. At the city-level, our results show that higher minimum wages affected aggregate productivity growth via both productivity growth in incumbent firms and the net entry of more productive firms. Hence, in a fast-growing economy like China, there is a cleansing effect of labor-market standards.

Suggested Citation

  • MAYNERIS, Florian & PONCET, Sandra & ZHANG, Tao, 2014. "The cleansing effect of minimum wages. Minimum wages, firm dynamics and aggregate productivity in China," CORE Discussion Papers 2014044, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2014044
    as

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    Cited by:

    1. Belman, Dale. & Wolfson, Paul., 2016. "What does the minimum wage do in developing countries? : A review of studies and methodologies," ILO Working Papers 994893283402676, International Labour Organization.
    2. Lemoine, Françoise & Poncet, Sandra & Ünal, Deniz, 2015. "Spatial rebalancing and industrial convergence in China," China Economic Review, Elsevier, vol. 34(C), pages 39-63.
    3. Christian Dreger & Reinhold Kosfeld & Yanqun Zhang, 2016. "Determining minimum wages in China: Do economic factors dominate?," ERSA conference papers ersa16p101, European Regional Science Association.
    4. Kummritz,Victor & Taglioni,Daria & Winkler,Deborah Elisabeth & Kummritz,Victor & Taglioni,Daria & Winkler,Deborah Elisabeth, 2017. "Economic upgrading through global value chain participation : which policies increase the value added gains ?," Policy Research Working Paper Series 8007, The World Bank.
    5. repec:taf:oxdevs:v:45:y:2017:i:3:p:366-391 is not listed on IDEAS

    More about this item

    Keywords

    minimum wages; firm-level performance; aggregate TFP; China;

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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