Will Increasing Minimum Wage Create a Force on the Upgrading of Manufacturing Enterprises? An Empirical Analysis Based on Patent Application Data

Abstract

The minimum wage standard is an important system to protect the legitimate rights and interests of workers and maintain the basic living standards of residents. Then, in the face of the rising trend of the minimum wage, how will Chinese enterprises respond? In the short-term, facing the pressure of rising production costs, will companies accelerate the R&D and technology innovation, and replace the relatively expensive labor with technology and capital? Will the intensified market competition accelerate the exit of some low-value-added and low-end manufacturing enterprises, and speed up the pace of transformation and upgrading of the entire industry? These issues with far-reaching implications for China’s industrial restructuring and manufacturing development are worthy of in-depth thinking and research. Using the comprehensive database obtained from the matching of industrial enterprise database, patent database and regional minimum wage database, this paper carries out the mechanism analysis and the empirical test from two aspects, and inspects whether the increase of Chinese minimum wage standard will bring about industrial transformation and upgrading: On the one hand, the rise in wages will directly lead to industrial upgrading by stimulating corporate innovation. Through the empirical test of the two-stage model of Heckman, the preliminary results show that the rise of the minimum wage will not only significantly stimulate enterprises to increase R&D innovation and innovation achievements, but also improve the efficiency of R&D innovation. On the other hand, the rise of the minimum wage will increase the production cost of enterprises, squeeze the profit margin of enterprises, force low-productivity enterprises to withdraw from the market, encourage enterprises to increase R&D and innovation, and indirectly realize the transformation and upgrading of industries. By constructing the enterprise exit indicator, our probit panel random effect model estimates that the rise in the minimum wage does increase the risk of low-productivity companies being eliminated by the market. From the perspective of exogenous policy shocks－the adjustment of the minimum wage standards in regions, this paper innovatively combines the patent application data obtained by the Chinese Patent Database, and comprehensively and profoundly explores how the continuously raised minimum wage will force some enterprises to accelerate transformation and upgrading. The conclusions of this paper have important reference values for the formulation of the minimum wage standard in regions, innovation incentives and industrial upgrading policies: First, the minimum wage level should be adapted to the current development of local industry, following the principle moderate, stable, and controllable”. Second, further improving the structure of the minimum wage system will be helpful not only to improve income inequality, but also to transform China’s dependence on the export-oriented economic growth mode.