The unintended consequence of minimum wage hikes: Evidence based on firms' pollution emission

Abstract

This study examines the impact of an unanticipated consequence of minimum wage hikes on firms' pollution emissions in China by exploiting policy discontinuities at county borders to control for spatial heterogeneity. Using a unique dataset that combines industrial firms' emission records and county-level minimum wages, we document this notable consequence: higher minimum wages raise pollution emission intensity of Chinese manufacturing firms—the SO2 and COD emission intensity elasticities with regard to minimum wages being 0.274 and 0.262, respectively. The increased pollution intensity mainly results from the high consumption of dirty energy, insufficient pollution treatment facilities, and a failure in green technology upgrading. Furthermore, the pollution response is more pronounced in financially constrained firms as well as firms in more competitive and labor-intensive industries, while stringent environmental regulation somewhat alleviates this effect.