|
|
|
| Research on the Impact of Minimum Wages on Chinese Manufacturing Capacity Utilization Rate |
| MAO Qilin, YANG Qi, SHENG Bin
|
Center for Transnationals' Studies, Nankai University;
Economic Behavior and Policy Simulation Laboratory, Nankai University;
School of Economics, Nankai University |
|
|
|
Abstract Overcapacity has become a deep problem that seriously puzzles China's sustainable economic growth, and it is also the focus of the current macro adjustment. For a long time, our country government attaches great importance to the management and prevention of overcapacity problem. The report to the 20th National Congress of the Communist Party of China pointed out that “we should adhere to the theme of promoting high-quality development and organically combine the implementation of the strategy of expanding domestic demand with deepening supply-side structural reform”. Improving capacity utilization is the fundamental way out of overcapacity and the key to promoting high-quality development. In 2004, China's Ministry of Labor and Social Security adopted and implemented the Provisions on Minimum Wages, which promoted the minimum wage system to all parts of the country, and the minimum wage level in prefecture-level cities has been greatly increased. This paper takes the implementation of the minimum wage system in 2004 as the background, explores the possible path of improving the capacity utilization rate of China's manufacturing industry, and provides new ideas for effectively governing and resolving the problem of overcapacity in the future. These works have important theoretical value and practical significance.
We investigate the impact of minimum wage hikes on Chinese firm capacity utilization rate (CUR hereafter) and explore the mechanisms based on Chinese firm level data. We have four main findings to report. First, minimum wage hikes significantly raise firm CUR, and such an impact is increasing as the implementation period of the minimum wage system increases. Second, the heterogeneity analysis demonstrates that the CUR effect of minimum wage hikes is increasing with the treatment intensity. In addition, the promoting impact of minimum wage hikes on firm CUR is more pronounced for labor-intensive firms. Third, we explore the mechanisms through which minimum wage hikes affect firm CUR, and find that minimum wage hikes tend to improve production efficiency, enlarge the on-the-job training, improve management efficiency as well as promote firm outward direct investment, all of these factors jointly raise firm CUR. Finally, this paper further investigates the impact of minimum wage hikes on aggregate CUR at the prefecture-industry level, the results show that minimum wage hikes also significantly foster aggregate CUR growth, and the improvement of resource reallocation efficiency plays an important role The further test shows that minimum wage hikes raise resource reallocation efficiency mainly through promoting the exit of the firms with backward production capacity, and consequently fosters aggregate CUR growth. The above conclusions mean that the Chinese government can guide the manufacturing enterprises to increase innovation capability by improving the wage guarantee system and moderately increasing the minimum wage standard, encourage firms to “go globally”, and accelerate the market-oriented reform, so as to promote the transformation and upgrading of enterprises and improve the capacity utilization rate.
Our paper makes the following four contributions. First, from the perspective of research, the existing literature mainly focuses on the impact of the increase in the minimum wage standard on corporate decision-making behaviors such as employment and wages, corporate profitability, corporate innovation, corporate productivity, and corporate export, while few scholars pay attention to whether and how the increase in the minimum wage standard affects the capacity utilization rate of enterprises. This paper systematically evaluates the economic effects of the increase in the minimum wage standard from the perspective of the capacity utilization rate of China's manufacturing industry. Second, in terms of identification methods, this paper not only uses the difference-in-difference (DID) method to identify the causal effect of the increase in the minimum wage standard on the capacity utilization rate of enterprises, but also further strengthens the causal effect identification by constructing instrumental variables, thus obtaining more reliable research conclusions. Third, this paper systematically analyzes and verifies the mechanism of how the increase in the minimum wage standard affects the capacity utilization rate of enterprises from multiple aspects, which is helpful to deepen the understanding of the internal relationship between the increase in the minimum wage standard and the change in the capacity utilization rate of enterprises. Fourthly, in order to more comprehensively evaluate the relationship between the increase in the minimum wage standard and the capacity utilization rate, this paper further studies the impact of the increase in the minimum wage standard on the overall capacity utilization rate at the urban industry level, and finds that the improvement of resource reallocation efficiency plays an important role. This novel finding undoubtedly has important policy implications for effectively governing and resolving the problem of overcapacity in the future.
|
|
Received: 14 November 2022
Published: 02 October 2023
|
|
|
|
|
|
|
|
