【Speaker】Sandra Poncet, Professor of Economics, University Paris I

【Topic】The Cleansing Effect of Minimum Wage Chinese Firms’ Adjustment to Wage Standards and Aggregate Effects for Employment and Productivity

【Time】 Friday, April 25, 10:00-11:30

【Venue】Room 453, Weilun Building, Tsinghua SEM.

【Language】English

【Organizer】Center of International Economic Research

【Target Audience】Faculty Members and Graduate Students

【Background Information】 

Sandra Poncet is Professor of Economics at University Paris I, a researcher at Paris School of Economics and scientific advisor at CEPII. Professor Poncet previously taught at University Paris 11, I and University of Michigan. She received her Ph.D. from Clermont-Ferrand University and was ranked in the third place of Concours National d’Agregation de l’Enseignement Superieur.

Her research interest is international economics, development economics, spatial economics, applied econometrics, Chinese economy. She has studied exchange rate volatility, financial constraints and trade: empirical evidence from Chinese firms, export upgrading and growth: the prerequisite of domestic embeddedness and clustering the winners: the French Policy of Competitiveness Clusters. 

Her work has been published in academic journals including World Bank Economic Review, World Development, Journal of Regional Science, Journal of Economic Integration, European Economic Review, Journal of Development Economics, Regional Science and Urban Economics, Review of Economics and Statistics, China Economic Review, The World Economy, Economic System, Journal of Comparative Economics, Review of International Economics. Her research has been awarded with external financing from competitive research grants on several occasions.

【Abstract】

We study the effect of city-level minimum wage increases on the survival, employment and productivity of Chinese firms. The empirical approach exploits the 2004 reform of minimum wage regulations to implement a difference-in-differences and an IV strategy. We find that increases in minimum wage resulted in lower survival probability for firms that are most exposed to the reform; for surviving firms, wage costs increased but the reform did not adversely affect the employment of these firms. The main explanation for this finding is that labor productivity significantly improved, allowing firms to absorb the cost shock without hurting their employment nor their profitability. At the aggregate level, the overall effect in terms of employment of these firm-level adjustments is null. However, minimum wage increases fostered aggregate productivity growth through productivity improvements of incumbent firms and net entry of more productive ones. Hence, there is a cleansing effect of the minimum wage which, in a fast-growing economy like China, can both ensure a better distribution of growth benefits and strengthen the manufacturing competitiveness without hurting aggregate employment.