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Effects of Minimum Wage on Import and Innovation: Theory and Evidence from China

Author

Listed:
  • Chu, Angus C.
  • Furukawa, Yuichi
  • Kou, Zonglai
  • Liu, Xueyue

Abstract

This study explores the heterogeneous effects of minimum wage on innovation of different types of firms. Using firm-level data in China, we find that a higher minimum wage is associated with more innovation by importing firms but less innovation by non-importing firms. To interpret these empirical findings, we develop an open-economy R&D-based growth model and find that a higher minimum wage reduces innovation of firms that use domestic inputs but increases innovation of firms that import foreign inputs. Intuitively, when a higher minimum wage reduces employment, importing firms respond by importing more inputs, which have technology spillovers and enhance their innovation.

Suggested Citation

  • Chu, Angus C. & Furukawa, Yuichi & Kou, Zonglai & Liu, Xueyue, 2019. "Effects of Minimum Wage on Import and Innovation: Theory and Evidence from China," MPRA Paper 97008, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:97008
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    File URL: https://mpra.ub.uni-muenchen.de/97008/1/MPRA_paper_97008.pdf
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    More about this item

    Keywords

    innovation; minimum wage; imports; knowledge spillovers;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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