Labor Cost And Firm Behavior

Since1978Chinese household saving rate continues to increase. And in order to promote economic growth, the government mainly depends on the comparative advantage of cheap labor in China to promote export. Indeed in the21st century, the stimulating effect of exports on economic growth is very significant. However, we should be aware that this situation should be changed because of the changing of relatively labor cost between countries. Actually, since the1950s there are three major transfers of manufacturing industry due to changing of comparative advantage of labor costs. In recent years as we know, Chinese labor cost is increasing continously. For example, the minimum wage of each city is frequently raised and it is regarded as the most direct approach to impact labor cost. So, it is very interesting to find that what are the impact of these changes in labor costs on firm behavior, such as firm’s average wage, employment, export and on-job-training? These answers are meaningful especially for policy-makers.In this dersation we utilize the different trends of minimum wage in different regions to identify the effect of labor costs on Chinese manufacturing enterprises’ behavior. According to the existing literatures, these differences are often regarded as exogenous shocks. And the data we used is the large-scale manufacturing enterprises report data in1998～2007. This data has huge samples, and more importantly, the collection object of such data is large-scale manufacturing enterprises, which is very suitable for the purpose of our study. In order to collect every regional minimum wage data, we conducted mainly by hand. And we can finally collect1240data by querying the relevant policies and regulations, which account37.13%of full data (more than300cities and10years). In details, we conduct our question in the following4stages:Firstly, we analyzed the effect of minimum wage on firm’s average wage. This is the starting point for a series of following studies. Results show that from1998to2007, the minimum wage will increase firm’s overall average wage. It is for every1%increase in minimum wage, manufacturing enterprises’average wages will be rosen by0.04%～0.05%. For firms in different industries or with different asert per capita, the impact of the minimum wage is inconsistent. Minimum wage will increase firms’average wage in agricultural industry and lower asert per capita much more. For improving income distribution, the minimum wage has no effect, although it will reduce the Gini coefficient, but the result was not significant in10%level. From policy makers, these findings mean that the government can utilize the minimum wage system to increase average wage of low skilled works, but gonvernment may not over-rely on it to adjust the income distribution.Secondly, the relationship of minimum wage and employment is a very important topic in labor economics. Beside this in our country, the government faces relatively large pressure on employment, so to estimate the mignitude effect of minimum wages on employment will help policy makers to grasp the true effects of minimum wages. To our knowlage, domestic related studies are rare.Results show that minimum wage has significant negitive effect on empolyment. For every1%increase in the minimum wage, there is an overall about0.06%decline in the number of manufacturing enterprises employ. Meanwhile, with the increase in asert per capita, the impact of minimum wage is smaller. Policy makers should weigh the positive effect of minimum wage in income distribution and the negitve effect on employment when set a minimum wage standard.Thirdly, utilizing this data we also analyzed the effect of minimum wage on export. Relevant conclusions show that the minimum wage will not only significantly reduce the possibility of exports, but also reduce the quantity of exports for export enterprises. Using Kyriazidou (1997)’s method of sample selection in panel data, we find that the previous conclusion is still valid after adjusting sample selection bias. Aggain, there is still some heterogeneity in the impact of the minimum wage. For firm with average wage between the previous minimum wage level and the current minimum wage level, the impact of minimum wage will be much bigger. With the increasing of asert per capita, the effect of minimum wage will be increasingly weak. There conclutions mean that it should be increasingly difficult for Government’s export-oriented development strategy.Forthly, as we all know, the vocational education or the on-job-training is a very important educational process for every person, which has an important role on person’s work experience, life time wealth or productivity. From the perspective of firm’s on-job-training to analyze minimum wage will no doubtly help the government to understand the impact of training cost on the job training and help the Government in setting related follow-up policies. Regression results showed that, both the possibility of firm to provide on-job-training or the volumn of on-job-training investment, the minimum wage has a significant negative effect. In order to push firm provide on-job-training to their works, reducing the cost of on-job-training will become much more important.In addition, this paper also used "quasi-natural experiment" approach to conduct the robustness checks. Specifically, we utilized the increasrment of minimum wage in Fujian Province from2006to2007as a natural shock. And we use Guangdong Province, Fujian Province as control group and experimental group respectively. The mothed in this part is DID regression. In order to improve the comparability between the experimental group and control group, we use Zhangzhou city, Longyan city in Fujian province as treatment groups, while the control groups are Meizhou city, Chaozhou city in Guangdong Province. Robustness checkings further confirm the most of the conclusions.I believe this paper has several slight improvements. In details:Firstly, the topics of this paper are relatively new and domestic related researches in these topics are rare. These studies are very meaningful in theoretical background or for policy making.Secondly, we use a huge data in this paper. I belive the conclusions in this paper are much more general. More importantly, the collection object of such data corresponding to China’s manufacturing enterprises, which is very suit for our topic.Thirdly, the paper collects the minimum wage data by hand and it is in its best quality so far. Our minimum wage data is much more comprehensive than existing litertures and has greater variation to provide a reliable basis for identification.Fourthly, the solution to endogenous problem in this paper is much more reasonable. We utilized the different trends of minimum wage in different regions to identify the impact of minimum wage on firm’s behavior, which can itself be regarded as exogeneity. In addition, we added the city-level average wage, employment and some other Marco variables to deal with government’s adjutment of minimum wage based on regional average wage and employment.Fininally, we conducted a series of robustnesscheckings, and the findings in this paper may be more credible. This "quasi-natural experiment" approach is very helpfu to reveal the relationship between minimum wage and firm’s behaviors.