How does minimum wage affect firm pollution discharges: Evidence from China

Abstract

Based on a production function perspective, this study constructs a manufacturing firm and city-level data set to investigate the role of minimum wage increases in firm pollution emissions. The empirical results suggest that the rise of minimum wages in China significantly increases firm pollution discharges. We adopt a series of strategies to deal with endogeneity problems and find that our results are robust to these approaches. We then estimate the heterogeneous effects of the minimum wage standard and demonstrate that minimum wages' impacts on firm pollution discharges are strong for firms in the central region, those with younger age, those with small scale and those located in the less developed areas. Finally, we explore the potential mechanisms of raising minimum wages and reveal the existing channels that the more input of fossil fuel energy and less input of pollution treatment facilities in the production process are the crucial mechanisms through which a higher minimum wage expands firm pollution emissions. Our findings provide empirical evidence for preventing firm pollution.