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Improving or disappearing: Firm-level adjustments to minimum wages in China

Author

Listed:
  • Florian Mayneris

    (UQAM - Université du Québec à Montréal = University of Québec in Montréal)

  • Sandra Poncet

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Tao Zhang

Abstract

We here consider how Chinese firms react to higher minimum wages, exploiting the 2004 minimum-wage Reform in China. After this reform, we find that the wage costs for surviving firms that were more exposed to minimum-wage hikes rose, but also that their productivity significantly improved, allowing them to absorb the cost shock without any change in their profitability and with limited job losses. Our results are robust to pre-existing trend analysis and an IV strategy. However, the survival probability of the firms that were most exposed to minimum-wage hikes fell after the Reform. Firm-level productivity gains partly came from better inventory management and greater investment in capital, at the cost of a reduction in firm-level cash.

Suggested Citation

  • Florian Mayneris & Sandra Poncet & Tao Zhang, 2018. "Improving or disappearing: Firm-level adjustments to minimum wages in China," PSE-Ecole d'économie de Paris (Postprint) halshs-01885465, HAL.
    • Handle: RePEc:hal:pseptp:halshs-01885465
    DOI: 10.1016/j.jdeveco.2018.06.010
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    Keywords

    Minimum wages; Firm-level performance; Productivity; China;
    All these keywords.

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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