School of Accounting, Zhejiang Gongshang University; School of International Business, Shanghai University of International Business and Economics; School of Economics, Xiamen University
Summary:
Research on the impact of labor market factors on the real economy is currently increasing in the fields of economics and corporate finance, and innovation is currently the driving force of China's economic development. The effect on innovation of the minimum wage, an important labor policy, is not adequately examined in the literature, and thus investigating the relationship between the minimum wage and enterprise innovation has both practical and theoretical significance. The minimum wage may discourage innovation, as rising labor costs can lead to enterprises' shutting down or exiting the local market. The cost pressure from an increase in the minimum wage may also result in fewer non-wage benefits, such as enterprise training investment, which can reduce or weaken employees' sense of belonging to an enterprise and thus reduce their level of innovation. However, the minimum wage can also promote innovation, as the increasing labor costs can lead to a decline in profits, which can encourage enterprises to adopt advanced technologies to replace expensive labor. This can be viewed as labor-induced technological progress. An increase in the minimum wage can also force out low-skilled workers and improve the overall human capital of a business, thus promoting innovation. Using patent data and data on listed companies from 2006 to 2014, we examine the impact of municipal minimum wages on innovation, and find a positive effect. Through adjacent sample analysis, a double difference strategy, and a series of other robustness tests, we find that the significant positive relationship between minimum wage and innovation is generally stable. The minimum wage improves the material capital of enterprises, reduces the number of low-skilled workers, increases the number of high-skilled workers, and helps to optimize human capital, thus providing both the hardware and software conditions for innovation. Enterprises can achieve innovation through self-innovation and technology introduction. The minimum wage also improves the innovation efficiency of enterprises. Further analyses indicate that the minimum wage improves an enterprise's factor structure and total factor productivity. Heterogeneity analysis shows that the minimum wage has a more obvious influence on the innovation of more labor-intensive enterprises, those with lower average wages, those with higher levels of industry competition, and those in high-(vs. low-) marketization regions. Our study has theoretical value as we analyze the influence of institutional factors (minimum wage) on micro-enterprise innovation, rather than labor factors at the company level, which is the main focus of other studies of labor cost and innovation. The capital-skill complementary theory has rarely been applied in studies of the effects of minimum wage, but we systematically examine its varying effects on the demand for high-skilled and low-skilled labor, thus overcoming the drawbacks of a homogenous analysis of labor demand. By applying this theory we find that the minimum wage leads to low-skilled workers' losing their jobs, indicating that it can harm the interests of such workers and is therefore not an act of labor protection in a general sense. This study also provides new policy implications. Our finding that the minimum wage leads to a decline in the employment of low-skilled labor indicates that although such policies can promote enterprise innovation and development, at least some employees will suffer. Laid off workers should therefore be actively re-employed in all regions implementing minimum wage policies. We also identify enterprises with self-created technology and those with imported technology in the market. These two types of innovation should be recognized in innovation-driven development strategies. Policymakers should provide distinct innovation incentives to the two groups of companies, giving priority to supporting enterprises that create their own technologies while also considering those that use external technologies.
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