MINIMUM WAGE AND PRODUCTIVITY GROWTH: EVIDENCE FROM THE CHINESE MANUFACTURING SECTOR

In this paper, we examine how the minimum wage affects firm productivity growth with a representative Chinese manufacturing data. Instrumental variable estimation is employed to deal with the potential endogeneity problem between minimum wage and productivity growth. We find that with a 1% increase in the minimum wage, the productivity growth rate on average decreases by 0.299%. Overall, we find that variations in the minimum wage have a highly heterogeneous effect on productivity growth across regions, time and ownerships. To deal with the continuous increase in the minimum wage, firms will use more capital and intermediate input to replace labor.