Minimum Wages, Import Status, and Firms' Innovation: Theory and Evidence From China

Abstract

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. Intuitively, when the minimum wage increases, importing firms substitute labor with imported inputs, which have technology spillovers and enhance their innovation. We test this result using city-level data on minimum wages and firm-level patent data in China. Finally, we find that in accordance with our theory, 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.

Effects of patent policy on growth and inequality: exogenous versus endogenous quality improvements

“…Instead of patent length and a patentability requirement, we consider patent breadth as in Li (2001), who finds that increasing patent breadth stimulates R&D and promotes economic growth. Following Li (2001), a large number of studies, such as Goh and Olivier (2002), Furukawa (2007), Chu and Furukawa (2011), Cysne and Turchick (2012), Iwaisako and Futagami (2013), Bond and Zissimos (2017), Huang et al (2017), Chu and Cozzi (2018), Iwaisako (2020), Zheng et al (2020a), Chu et al (2021a), andYang (2021), also explore the effects of patent breadth within variants of the Schumpeterian growth model. 8 The present paper complements this strand of the literature by investigating the growth effect of patent protection in a quality-ladder 6 For other seminal studies on R&D-based endogenous economic growth, see also Romer (1990), Segerstrom et al (1990), Jones (1995), and Peretto (1998).…”

How Minimum Wages Affect Automation and Innovation in a Schumpeterian Economy

“…patent it is the log value of the number of patent applications by …rm i in year t. 17 min _wage c;t 1 is the log value of monthly minimum wage in city c in year t 1. 18 X i;t 1 is a vector of …rm-level control variables in year t 1, whereas c;t 1 is a vector of city-level control variables in year t 1.…”

“…Few studies focus on the Chinese labor market, but several studies have shed light on other developing countries, with the estimated values larger than one. For example,Psacharopoulos and Hinchli¤e (1972) provide an estimated range from 2.1 to 2.5 for 9 developing coutries,Angrist (1995) …nds a value of " = 2 for the Palestinian labor market, andBehar (2009) …nds an elasticity of about 2 for 43 developing countries 17. Given that some …rms have zero patent applications, we add one to the number of patent applications 18.…”

How Minimum Wages Affect Automation and Innovation in a Schumpeterian Economy

“…For example, Psacharopoulos and Hinchli¤e (1972) provide an estimated range from 2.1 to 2.5 for 9 developing coutries, Angrist (1995) …nds a value of " = 2 for the Palestinian labor market, and Behar (2009) …nds an elasticity of about 2 for 43 developing countries. 17 Given that some …rms have zero patent applications, we add one to the number of patent applications. 18 If we use the minimum wage in year t, the results still hold.…”