Firm Response to Competitive Shocks: Evidence from China’s Minimum Wage Policy

By Harald Hau, Yi Huang, Gewei Wang. The Review of Economic Studies, 2020

126 citations recorded by the source corpus.

The large regional variation in minimum wage levels during the period 2002–8 in China implies that Chinese manufacturing firms experienced competitive shocks as a function of firm location and their low-wage employment share. We find that minimum wage hikes accelerate the input substitution from labour to capital, reduce employment growth and accelerate total factor productivity growth—particularly among the less productive firms under private Chinese or foreign ownership, but not among state-owned enterprises. The heterogeneous firm response to labour cost shocks can be explained by differences in management practices and suggests that management quality and competitive pressure are complementary.

Subfields: Economics and Econometrics, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/1c55660de0d6b9ff7db8120083d615c94ce00fb7

Citations in the corpus

• Minimum Wage and Outward FDI from China (2018, unknown): “impacts of the minimum wage increase in China along many different dimensions, including employment, capital investment, exporting behaviors and management practice (Huang et al., 2014; Hau et al., 2016; Gan et al., 2016; Mayneris et al., 2017).”