Dynamic effects of minimum wage on growth and innovation in a Schumpeterian economy

Abstract

We explore the dynamic e¤ects of minimum wage in a Schumpeterian model with endogenous market structure and obtain the following results. First, raising the minimum wage decreases the employment of low-skill workers and increases the unemployment rate. Second, it decreases the level of output. Third, it decreases the transitional growth rate of output but does not a¤ect the steady-state growth rate. Our quantitative analysis shows that the magnitude of the negative e¤ects of minimum wage is sharply increasing in low-skill labor intensity in production and that employed low-skill workers gain initially but might su¤er from slower growth in future wages.

Minimum Wages, Import Status, and Firms' Innovation: Theory and Evidence From China

“…In this case, R&D labor R f in sector f is increasing in minimum wage µ, whereas R&D labor R d in sector d is decreasing in µ. Intuitively, when a higher minimum wage reduces employment, importing firms respond by importing more capital goods, 14 which have technology spillovers and improve research efficiency in sector f . This leads to a reallocation of research labor from sector d to sector f .…”

“…In other words, for a given (n f ) 1/α x f , a higher minimum wage µ leads to an increase in the income share Φ f of imported capital goods by decreasing L f due to the substitutability between labor and imported inputs. Combining (13), (16), (17), and (20) yields the steady-state ratio of relative technology between the two sectors as n f…”

“…From 2011 to 2013, it covers all of the firms with annual sales income of more than 20 million yuan. 17 The second dataset is transaction-level import and export data from the China General Administration of Customs (CGAC). This dataset includes information on each import and export transaction of Chinese firms from 2000 to 2013, including firm name, product codes, value, and quantity.…”

“…While all of these early studies feature full employment, some subsequent studies use different approaches to incorporate equilibrium unemployment into the R&D-based growth model. 2 A branch of this literature uses variants of the R&D-based growth model to explore the effects of minimum wage on unemployment and innovation; see Askenazy (2003), Meckl (2004), Agenor and Lim (2018), Chu, Cozzi, Fan, Furukawa, and Liao (2020), and Chu, Kou, and . This study contributes to this literature by showing that minimum wage has heterogeneous effects on innovation of different firms, and by testing these heterogeneous effects using firm-level data.…”

How Minimum Wages Affect Automation and Innovation in a Schumpeterian Economy

“…This implies that an increase in minimum wage decreases patent applications at the …rm level. Given that patents are classi…ed into three categories, 19 among which invention patents are most relevant for innovation, we further test our theory upon replacing the dependent variable in columns ( 1) and (2) by the number of invention patents. In columns (3) and (4), we focus on the number of invention patent applications.…”