Abstract: Recent years have seen a continual wage increase in enterprises in China.According to the wage theory, the rise in labor price will prompt firms to adopt labor-saving technologies, which means that high wage will induce enterprise innovation. In this paper, data from China's industrial enterprises are used to analyze the influence of wage increase on innovation with the following findings.
(1) There is a significant positive correlation between the wage and the output of new products;
(2) There is also a significant positive correlation between the wage and the input into research and development;
(3)The positive effect of the wage on the innovation input and product output is still significant even after the lagging average wage is added to regression;
(4) The regression results remain significant at the same level, with the coefficient larger than that of the full sample, even when the labor-intensive enterprises are treated as an independent sample, its wages being a comparatively larger share in their production cost.
The conclusion has thrown light on the understanding of the importance of the factor market to the innovation-driven economy. The price of labor in China remained, for a great many years, at a low level, because of the distortion of factor market and the rigidity of wages. The benefits brought about by such cheap labor have, in part, been the cause of the clear lack of innovation incentive in Chinese enterprises. However, the gradual disappearance of the population bonus, which the nation enjoyed so much in previous years, has inevitably led to the rise of labor price in this market. The Chinese enterprises have thus been forced to shift from taking advantage from product price to product quality, and hence the incentive for innovation has come into being, willingly or unwillingly, which exemplifies the importance of reform in the factor market to the promotion of enterprise innovation in China.
In the study, the model is tested with Houseman test, and the results are found to strongly reject random effects model. For the purpose, a number of elements are controlled, including the size of enterprises, export levels, business management inputs and government subsidies. Some other observations are eliminated, such as the total assets, the capital, fixed assets, industrial output value, industrial added value, wages and the number of employees, which are negative in the industrial enterprise database. Those enterprises where the number of employees exceeds eight are kept in. In fact, there are different time trends found between several major variables. Among them, the rising trend of average wages and sales is more obvious, while there is no obvious trend in the output value of new products. Instead, there existed a wave between 1998 and 2007. The government subsidies are found to be on the rise for the 1998-2003 period, but in decline in the 2005-2007 period. The level of exports rose between 1998 and 2005, while in 2006 and 2007 the trend was downwards. The reliability of the results is guaranteed after the data get so properly treated.
Key Words: wage increase; new product output; R&D input; innovation.