The Unassuming Economist

From a paper by Bing Lu, Xu Yang, Xinding Yu:

“Using data from Chinese industrial firms between 2000 and 2013, we explore the varied impact of minimum wage increases on the exit behavior and export performance of foreign-owned firms, focusing on three primary motivations: labor costs, market size, and industrial linkages. The results show that foreign-owned firms driven by labor costs are more likely to exit following a minimum wage hike, while those motivated by market size and industrial linkages are less likely to be affected. We also observe similar patterns in firm exports: rising minimum wages generally reduce foreign-owned firms’ exports, with the impact being more pronounced for firms with lower domestic market shares and weaker industrial linkages. This paper highlights that deep integration of foreign-owned firms into the domestic market and industrial chain can help mitigate the exit risks associated with rising labor costs.”