The effects of minimum wage and employment standards on labour investment efficiency: A comparison of state-owned and private companies in China

Abstract

This study examines how China’s minimum wage and employment standards shape corporate labour investment efficiency, and whether these effects differ between state-owned and private firms. Using panel regression analysis with year- and industry-fixed effects, ownership interactions, and over- and under-employment subsample splits, we analyse 18,575 firm-year observations of companies listed on the Shanghai and Shenzhen stock exchanges between 2010 and 2019. Higher minimum wage standards are associated with lower labour investment efficiency on average, but this penalty weakens in overemployed firms and reverses into an efficiency gain in underemployed firms. Employment size is also negatively associated with labour investment efficiency on average, with a stronger negative effect in state-owned enterprises; however, the association becomes positive among underemployed firms. When a high minimum wage and a large workforce coincide, labour investment efficiency deteriorates in general but improves in underemployed state-owned enterprises. These findings indicate that the effects of labour market regulations depend on ownership structure and the firm’s position relative to its optimal employment level. The results suggest that policymakers should avoid uniform labour-market policies and instead consider differentiated approaches to minimum wages and employment standards across ownership types and employment conditions. The study contributes to the labour investment efficiency literature by highlighting the regulatory environment as an important source of cross-firm heterogeneity.