Service opening and wages of manufacturing firms: Evidence from China

Abstract

Based on the ‘Catalogue for the Guidance of Foreign Investment’ and the input-output table issued by the National Bureau of Statistics, this paper constructs the service opening index from 1998 to 2013. With this indicator, we empirically study the impact of the service industry opening-up on firm wage. Our research yields a few findings. First, the service industry opening-up can significantly improve the level of firm wage. This result is still significantly valid after various robustness test and endogenous treatment. Moreover, after segmenting upstream service sources into details, the opening-up of the finance, telecommunication, and sales service sectors can promote the growth of firm wage. Second, the heterogeneity analysis shows that the service industry opening-up exerts a greater impact on firms' wage for firms in the central and western regions rather than eastern region, and for firms in the “post rich” regions rather than “pre-rich” regions, as well as firms in more severe market segmentation rather than regions with less market segmentation. Finally, according to the analysis of the impact mechanism, the opening-up of the service industry mainly promote firm wage through three channels: improving labor productivity, operating income, and human capital. Furthermore, the analysis of technical differences in service input displays that the service industry opening-up exerts a greater impact on firms' wage for firms in high-tech service industry. The analysis of labor income distribution shows that the opening-up of the service industry can also significantly increase the share of labor income of firm, especially in the opening-up of finance, telecommunication, and sales service industry.