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Wage increase and innovation in manufacturing industries: Evidence from China

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  • Junwei Shi
  • Hongyan Liu

Abstract

This paper explores the relationship between wage increase and innovation and investigates the underlying mechanisms through which wage increase affects innovation. Empirical results, based on the data from 37 two-digit manufacturing industries in China from 2002 to 2019, show that the increases in wages do contribute to innovation in general but their contributions vary across industries and over time. Specifically, the effects of the increasing wages on innovation were insignificant before 2008 but became positively significant after 2008. Moreover, labor productivity acts as a mediating channel between wage increase and innovation while the labor substitution mechanism does not work. The findings in this study offer a new understanding of the effects of the increasing wages on innovation in developing countries.

Suggested Citation

  • Junwei Shi & Hongyan Liu, 2022. "Wage increase and innovation in manufacturing industries: Evidence from China," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 27(1), pages 173-198, January.
    • Handle: RePEc:taf:rjapxx:v:27:y:2022:i:1:p:173-198
    DOI: 10.1080/13547860.2021.1961415
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    Cited by:

    1. Zhipeng Gao & Zhenyu Wang & Mi Zhou, 2023. "Is China’s Urbanization Inclusive?—Comparative Research Based on Machine Learning Algorithms," Sustainability, MDPI, vol. 15(4), pages 1-16, February.
    2. Chen, Feng-Wen & Xu, Jingwei & Wang, Jiang & Li, Zhilong & Wu, Yongqiu, 2023. "Do rising labour costs promote technology upgrading? A novel theoretical hypothesis of an inverted U-shaped relationship," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 327-341.

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