Minimum wage and export: evidence from Chinese firm-level data

Ma, Shuang; Sun, Churen and Tian, Guoqiang (2011): Minimum wage and export: evidence from Chinese firm-level data. Unpublished.

Abstract

This paper proposes a two-country trade equilibrium model with heterogeneous firms to investigate the influences of minimum wages and productivity on firms' exports. It shows that the influence of minimum wages on firms' exporting probability and foreign sales is negative while that of firms' productivity on their exports is positive. Econometric analysis based on the Annual Survey of Chinese Industrial Firms as well as the data of minimum wages collected ourselves from 1998 to 2007 verifies these predictions. Holding the other variables constant, if minimum wages and their productivity increase by 100%$, then the elasticity of minimum wage on firms' exporting sales is -8.6% while that of firms' productivity is 75.6%, and firms' exporting possibility decreases by 1.1%$ and increases by 1.6%$, respectively.

• Item Type: MPRA Paper
• Language: English
• Keywords: Minimum wage, heterogeneous firm, productivity, export
• Subjects: F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification and Scope, Age, Profit, and Sales; F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies

References

Bernard, Andrew B., Jonathan Eaton, J. Bradford Jenson, and SamuelKortum, 2003, "Plants and Productivity in International Trade", American Economic Review, Vol.93(4), 1268-1290.

Bhagwati, J. N. and V. K. Ramaswami, 1963, "Domestic Distortions, Tariffs and the Theory of Optimum Subsidy", Journal of Political Economy, Vol.71, 44-50.

Brecher, Ricard A., 1974a, "Minimum Wage Rates and the Pure Theory of International Trade", Quarterly Journal of Economics, Vol.88(1), 98-116.

Brecher, Richard A., 1974b, "Optimal Commercial Policy for a Minimum-wage Economy", Journal of International Economics, Vol.4, 139-149.

Egger, H., P. Egger and J. R. Markusen, 2009, "International Welfare and Employment Linkages Arising from Minimum Wages", NBER Working Paper Series No.15196.

Flug, K. and O. Galor, 1986, "Minimum Wage in A General Equilibrium Model of International Trade and Human Capital", International Economic Review, Vol.27(1), 149-164.

Haberler, G. Some Problems in the Pure Theory of International Trade [J]. Economic Journal, 1950, 60(238), 223-240.

Hagen, E., 1958, "An Economic Justification of Protectionism", Quarterly Journal of Economics, Vol.72(4), 492-514.

Inoue, Tadashi and Yoshitaka Itsumi, 1992, "A Note on International Trade with a Minimum Wage and Endogenous Labor Supply Economy", International Economic Review, Vol.33(1), 239-244.

Levinsohn, J. and A. Petrin, 2003, "Estimating Production Function Using Inputs to Control for Unobservables", Review of Economic Studies, Vol.70, 317-342.

Magee, P. S., 1976, International Trade and Distortions in Factor Market, New York: Marcel Dekker.

Melitz, Marc J., 2003, "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity", Econometrica, Vol.71(6), 1695-1725.

Neary, J. Peter, 1985, "Intenational Factor Mobility, Minimum Wage Rates, and Factor-price Equalization: A Synthesis", Quarterly Journal of Economics, Vol.100(3), 551-570.

Olley, Steven and Ariel Pakes, 1996, "The Dynamics of Productivity in the Telecommunications Equipment Industry", Econometrica, Vol.64(6), 1263-1297.

Schweinberger, Albert G., 1978, "Employment Subsidies and the Theory of Minimum Wage Rates in General Equilibrium", Quarterly Journal of Economics, Vol.92(3), 361-74.

Sun, Churen, Guoqiang Tian, and Tao Zhang, 2011, "When Pareto Meets Melitz: the Inapplicability of the Melitz-Pareto Model for Chinese Firms", mimeo, Institute of International Business, Shanghai Institute of Foreign Trade. Swamy, P. A., V. B. George, S. Tavlas, and Stephen G. Hall, 2009, "The Nonexistence of Instrumental Variables", University of Leicester Working Paper No. 09/16.

Tybout, James R., 2003, "Plant and Firm Level Evidence on ’New’ Trade Theories", In: E. Kwan Choi and James Harrigan, eds., Handbook of International Trade. Oxford, UK: Basil Blackwell, 2003.