Munich Personal RePEc Archive

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.

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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.

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