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

Chu, Angus C. and Furukawa, Yuichi and Kou, Zonglai and Liu, Xueyue (2019): Effects of Minimum Wage on Import and Innovation: Theory and Evidence from China.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: innovation; minimum wage; imports; knowledge spillovers
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives

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