We investigate the effect of rising labor costs on induced technological change in China's secondary industry. While previous studies have focused primarily on induced technology change in agriculture and in energy production/environmental protection, there has been little evidence relating to China's adjustments as rising labor costs affect its global competitiveness in the manufacturing sector. Building on insights developed in a rich literature, we propose a model linking changes in labor productivity to changes in labor costs, and the availability of physical capital. Importantly, we derive testable hypotheses to distinguish induced innovation from standard substitution of capital for labor under fixed technology.
These hypotheses are tested using both firm- and provincial-level data. Our empirical results support the hypothesis that rising wages have induced labor-saving innovation in China, at least in the decade of the 1990s, but less so or not at all after the middle of the next decade.
We use cookies to provide you with an optimal website experience. This includes cookies that are necessary for the operation of the site as well as cookies that are only used for anonymous statistical purposes, for comfort settings or to display personalized content. You can decide for yourself which categories you want to allow. Please note that based on your settings, you may not be able to use all of the site's functions.
Cookie settings
These necessary cookies are required to activate the core functionality of the website. An opt-out from these technologies is not available.
In order to further improve our offer and our website, we collect anonymous data for statistics and analyses. With the help of these cookies we can, for example, determine the number of visitors and the effect of certain pages on our website and optimize our content.