Working Paper: NBER ID: w24456
Authors: Xue Bai; Arpita Chatterjee; Kala Krishna; Hong Ma
Abstract: This paper develops a new model with heterogeneous firms under perfect competition in a Heckscher-Ohlin setting. We derive a novel prediction regarding the effect of minimum wages on selection, namely that a binding minimum wage will raise (or lower) TFP at the firm and industry level depending on whether the capital intensity of entry costs exceeds (falls short of) that of production. Exploiting rich regional variation in minimum wages across Chinese counties and using firm level production data, we find robust evidence in support of causal effects of minimum wages consistent with our theoretical predictions.
Keywords: Minimum Wage; Productivity; Firm Exit; General Equilibrium; Heterogeneous Firms
JEL Codes: H0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| minimum wage increase (J38) | total factor productivity (TFP) increase (O49) |
| minimum wage increase (J38) | total factor productivity (TFP) decrease (O49) |
| minimum wage increase (J38) | probability of exit increase (C41) |