Minimum wage effects on firms' R&D investment: Evidence from China

This study examines the effect of minimum wage increases on firms' R&D expenditure in China. We find that an increase in the minimum wage significantly increases firms' R&D expenditure. This positive effect is stronger for labor-intensive firms, non-state-owned firms, and firms with fewer financing constraints and costs. To explore the underlying mechanism, we find that an increase in the minimum wage produces a factor substitution effect and a competitive pressure effect, and also mitigates the negative impact of agency problems and managerial myopia. Our study enriches the literature on economic consequences of a minimum wage and factors influ-encing firm innovation.