The Effect Of Minimum Wages On Industrial Firm's Profit In China

Since 2004,a wave of adjustment to the minimum wage has rolled up in China.The continuous rising of minimum wage has brought a labor cost shock to firms that could have a inhibiting effect on their profit,while the firm's profit is the key performance of its competitive position.Therefore,this paper studies the impact of the rise of minimum wage on corporate profit from multiple angles.Firstly,this paper uses panel data model and difference-in-difference(DID)method to analyze the impact of minimum wage on firm's profit and carries out robustness test.Secondly,according to ownership,capital intensity,location,wage level and other characteristics,this paper classifies corporations into different categories to research on the impact of minimum wage on profit of different types of firms.Finally,from the perspective of firm's productivity,it analyses whether the affecting process of the minimum wage to firm's profit exists the “adjustment effect” and “mediating effect”,and further investigates whether the minimum wage will affect the enterprise productivity through R&D investment,capital elements,human capital investment and other manners.The main conclusions are as follows.(1)From the whole sample,the impact of the rise of minimum wage on firm's profit is not statistically significant.And this conclusion is still tenable after robustness test of applying DID method based on propensity score matching and instrumental variables.(2)The effect of minimum wage on firm's profit varies across different industries,regions and wage levels.The rise of minimum wage has significant improvement impact on asset-intensive enterprises,as the asset-intensive enterprises own a lower labor proportion and they can replace labor force with asset when confronting with increased labor cost;compared with enterprises the western China,the rise of minimum wage is more conducive to improvement of corporate profits in eastern and central China as they own a richer technology and asset resources for avoiding the labor cost shock and enhancing productivity by element substitution;compared with enterprises with higher wage,the rise of minimum wage has a depressing effect due to the heavier cost burden;(3)From the perspective of firm's productivity,the affecting process of the minimum wage to corporate profit exists the “adjustment effect” and “mediating effect”,which means the rise of minimum wage has slighter impact on enterprises with higher productivity,and the minimum wage could affect firm's profit through their productivity.However,for firms with different capital intensity,there is no “mediating effect” in labor factor intensity firms.Moreover,increasing R&D investment and capital elements are the two channels for the minimum wage to improve the productivity of the enterprises,and the R&D input channel is more important relative to the capital elements.