MINIMUM WAGES, IMPORT STATUS, AND FIRMS' INNOVATION: THEORY AND EVIDENCE FROM CHINA

This study explores the heterogeneous effects of minimum wage on innovation of different types of firms. We develop an open-economy R&D-based growth model and obtain the following result: raising the minimum wage reduces innovation of firms that use domestic inputs but increases innovation of firms that import foreign inputs. We test this result using city-level data on minimum wages and firm-level patent data in China. In accordance with our theory, we find that raising the minimum wage is associated with more innovation by importing firms and less by non-importing firms. This result survives a battery of robustness checks.(JELE24, F43, O31)