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Wage payments and fixed capital investment in imperfect financial and labor markets: The case of China

Gu, Tao (2019): Wage payments and fixed capital investment in imperfect financial and labor markets: The case of China.

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Abstract

This paper examines how wage payments and fixed asset investments are determined, and their interrelationship, under China’s imperfect financial and labor markets. We collect aggregate data on wages, the financial market, and fixed asset investments from several statistical yearbooks. The main results are: (1) although greater financial market maturity has led to rising wage levels for state-owned enterprises, this phenomenon is not observed in the nonstate sector; (2) in the private sector, there is a strong reliance on internal reserves that is not observed in the state-owned sector, suggesting that the private sector is treated differently in the financial market; and (3) in the state-owned sector, wage growth has a positive correlation with fixed assets, whereas in the nonstate-owned sector this relationship is not observed. This implies that in the nonstate-owned sector, the underpayment of wages may be used as a survival strategy to conduct business under financial constraints.

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