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Do Rising Labour Costs Drive Innovation in Enterprises? Propensity Score Matching Evidence from Chinese Firms
Author(s) -
Huang Xianhai,
Chen Hangyu,
Yang Gaoju
Publication year - 2017
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12203
Subject(s) - propensity score matching , monopolistic competition , economics , robustness (evolution) , matching (statistics) , productivity , labour economics , total factor productivity , competition (biology) , capital (architecture) , microeconomics , industrial organization , macroeconomics , monopoly , history , ecology , biochemistry , statistics , chemistry , mathematics , archaeology , biology , gene
This paper uses a monopolistic competition model and propensity score matching (PSM) with Chinese firm‐level data to determine whether rising labour costs drive innovation within enterprises. The results indicate that rising wages do drive firms to invest more in R&D and use more capital to substitute for labour to minimize costs, which improves total factor productivity. The results are verified by several robustness tests.