Frontiers in Business, Economics and Management 
ISSN: 2766-824X | Vol. 14, No. 1, 2024 

 

96 

Research	on	the	Effect	of	Minimum	Wage	on	the	
Bargaining	Power	of	Chinese	Manufacturing	
Kailiang Xue1, Changqing Hu1 and Jianbing Luo1, * 

1Central South University of Forestry Science and Technology, Changsha 41004, China 
* Corresponding Author 

 

Abstract: Based on the data of China's industrial enterprise database from 2003 to 2013 and the national minimum wage data 
at county (city) level, this paper investigates the impact of minimum wage policy on China's manufacturing bargaining power. 
The results show that (1) the increase of minimum wage will reduce the price markup of Chinese manufacturers and weaken the 
bargaining power of Chinese manufacturers. (2) Compared with the minimum wage adjustment in the lag period, the cost impact 
of the minimum wage in the current period is more intense in weakening the bargaining power of the manufacturing industry. 

Keywords: Minimum wage; price markup; bargaining power. 
 

1. Introduction 
For a long time, China's manufacturing enterprises have 

made use of the comparative advantage of labor cost to obtain 
certain competitive advantage in the international market. 
However, the cost comparative advantage at the cost of 
distorting the labor market has not changed the fact that the 
price mark-up rate of Chinese enterprises is low.A rise in the 
minimum wage would raise the average wage of businesses, 
further raising their labor costs (Mayerneis et al. 2016, Dube 
et al. 2010) [1] [2]. The increase of enterprise cost is bound to 
increase the production and operation pressure of enterprises, 
and then affect the sustainable development of China's 
manufacturing industry. Therefore, the study of minimum 
wage policy on China's manufacturing economy is 
particularly critical. 

As a policy tool to regulate labor factor market, minimum 
wage has aroused the attention and research of many scholars. 
At present, the study of minimum wage mainly has the 
following two aspects: First, the impact of minimum wage on 
labor income distribution. The minimum wage raises the 
wages of low-income earners and pushes up the average wage 
of businesses, reducing inequality in the distribution of labor 
income, meaning that the potential economic effects of a 
minimum wage policy may outweigh its own individual cost 
effects (Autor, 2016)[2]. Second, the impact of minimum 
wage on employment. According to the classical perfect 
competition theory, the minimum wage will increase the 
average wage in the labor market, which will lead to the 
gradual reduction of employment. But, according to existing 
research, firms will not necessarily cut back on employment 
to offset their labor costs when the minimum wage rises, and 
it is debatable whether rising minimum wages will raise 
unemployment (Neumark, 2014; Mayneris, 2016) [1] [4]. 

The bargaining power of manufacturing industry reflects 
the market profitability of manufacturing industry and is 
closely related to profit and income growth of manufacturing 
industry. The Arkolakis (2012) monopolistic competition 
model, based on invariant substitution elasticity (CES), 
assumes that the price premium is exogenous, which makes it 
impossible to analyse the pro-competitive effects of trade 
liberalization[5]. In order to influence the endogenous 
bargaining power, some literatures relax the assumption of 

monopolistic competition. Parenti (2017) research shows that, 
when the number of firms is given, the Cournot oligopoly 
equilibrium leads to higher price markups and greater 
bargaining power than the Bertrand oligopoly equilibrium, 
whereas when firms freely enter the market, monopolies 
produce a wider range of products at lower prices than 
oligopolies [6]. 

Although some literatures have studied the influencing 
factors of bargaining power from many aspects, there is little 
research on it from the perspective of minimum wage pair. In 
this paper, we study the effect of minimum wage on 
bargaining power, which is helpful to evaluate whether the 
increase of minimum wage will have adverse effect on profit 
and competitiveness. 

2. Data Processing and Research 
Design 

2.1. Data processing 
The data used in this paper mainly comes from the database 

of China's industrial enterprises, the Statistical Yearbook of 
China's Cities and the monthly minimum wage data provided 
by the labor security department of all provinces. Based on 
the data of manufacturing enterprises in China from 2003 to 
2013, this paper measures the bargaining power of China's 
manufacturing industry by using the GDP per capita index of 
China Urban Statistics Yearbook as the control variable at the 
city level. 

For the database processing of Chinese industrial 
enterprises, the data matching method proposed by Brandt 
(2012) for Chinese industrial enterprise database shall be 
referred to for data matching, and the method uses enterprise 
code, enterprise name, legal person name, enterprise location, 
postal code, etc successively for matching, which improves 
the efficiency of use of sample data. Deal with the samples 
containing abnormal values, and delete abnormal values that 
meet the following conditions: (1) Enterprises whose total 
assets are less than the net value of fixed assets or whose total 
assets are less than the current assets; and (2) Enterprises 
whose key variables are missing, or enterprises whose total 
industrial output values, intermediate inputs and other 
variables are missing. In order to eliminate the impact of price 
changes on relevant indicators, the reduction index provided 



 

97 

by Brandt (2012) was used. At the same time, in order to avoid 
the impact of extreme value on the empirical results, the price 
markup at the level of 1% of the enterprise to carry out tail 
reduction. After data processing is completed, such indicators 
as total industrial output value, capital stock, number of 
employees, intermediate input, industrial added value and 
employee compensation payable are retained for the 
calculation of enterprise price markup. (3) The database of 
China's industrial enterprises includes such industries as 
"manufacturing industry", "extractive industry" and 
"production and supply of electricity, gas and water". The data 
of such industries as "extractive industry" and "production 
and supply of electricity, gas and water" are deleted and only 
the relevant data of "manufacturing industry" are retained. 
According to the database code classification of China's 
industrial enterprises, the manufacturing industry is mainly 
classified as follows: ①  raw material processing 
manufacturing industry ②  equipment manufacturing 
industry ③  food manufacturing industry ③  textile 
manufacturing industry ⑤  wood furniture manufacturing 
industry ⑥ paper, printing, cultural and educational supplies 
manufacturing industry ⑦  chemical raw materials and 
supplies manufacturing industry  

2.2. Research design 
2.2.1. Measurement of bargaining power 

In this paper, the index of bargaining power is price plus. 
Bargaining power refers to the ability of product price to 
remain above marginal cost, and price addition is defined as 
the ratio of product price to marginal cost. The higher the 
price markup, the stronger the bargaining power. Conversely, 
the lower the price markup, the weaker the bargaining power. 
The specific formula is as follows: 

 
              

itit

itit

itit

itit

midinputvalueadd

wagevalueadd

markupP

CP





 1

1   (1) 

 
Convert the above formulas to: 
 

                

itit

itit
it

midinputvalueadd

wagevalueadd
markup







1

1
       (2) 

 

Among them, itP  is the product price of the enterprise i  

in the t  year, itC is the marginal cost of the enterprise i  in  

t  year. itMarkup , defined as the ratio of unit product price 

to marginal cost, 








it

it

C

P
, is a measure of bargaining power.

itValueadd  represents the industrial value added of the 

enterprise, itwage   represents the total payroll payable of 

the enterprise, and itmidinput  represents the total 
intermediate input of the enterprise. 

2.2.2. Modelling 
Referring to the relevant studies on price markup, this 

paper establishes a fixed-effect model to analyze the impact 
of minimum wage on price markup. The specific models are 
as follows: 

 
cijtctictcijtctcijt ZXminwagemarkup   3210ln   (3) 

 
Among them, c ,i , j , t represent respectively thec city,

i  enterprise, j   industry and t  year. cijtmarkupLn  is an 
explanatory variable that represents the price markup of the 

city c  industry j  enterprise i  in the t  period. ctMiniwage
represents the minimum wage for the yearc of the city where 
the enterprise i  is located; cijtX  represents the set of major 

characteristic variables at the enterprise level; ctZ represents 
the set of characteristic variables at the year c  of the city 
where the enterprise i  is located; i  , i  and c  represent the 
fixed effects of the enterprise, time and province respectively; 
the fixed effects of time control the influence of factors such 
as external macro-environment that changes with time on the 
price addition; the fixed effects of the enterprise control the 
influence of the unobservable variables at the enterprise level 
on the price addition (such as the enterprise idea, enterprise 
culture and enterprise learning ability, etc.); the fixed effects 
of the province control the influence of the unobservable 
control variables at the provincial city level on the price 
addition (such as regional development potential and policy 

development advantage, etc.); cijt   represents the 
unobservable error items at the enterprise level, which follow 
the normal distribution. 

2.2.3. Description of main control variables 
1. Control variables at the enterprise level. The main 

control variables at the firm level include ：(1) the firm's 

intermediate input ratio ( minputln  ): the ratio of 
intermediate inputs to total industrial output is used. 
Generally speaking, the larger the index, the higher the cost 
and the lower the price markup. (2) The capital intensity of an 
enterprise ( klln  ): The higher the capital density of an 
enterprise, the larger the scale and the higher the efficiency of 
the enterprise, and the more likely it is to set a higher price 
markup and acquire a stronger bargaining power, as measured 
by the ratio of the net value of the fixed assets divided by the 
number of employees (employees) of the enterprise. (3) Age 
of the enterprise ( ageln  ): the enterprise's year minus the 
year of establishment shall be used for measurement. 

2. Controlling variables at the city level. In order to control 
the common factors that affect both the minimum wage and 
the enterprise price markup at the urban level, we refer to 
studies by Gan et al. (2016) and Mayneris et al. (2016). The 
control variables at the urban level are mainly logarithms of 
urban GDP per capita ( pergdpln ). 

3. Results of Empirical Analysis 

3.1. Benchmark regression analysis 
In the benchmark regression analysis, the minimum wage 

is the explanatory variable of this paper, and the price addition 
represents the bargaining power. In addition to the minimum 
wage of explanatory variables, this paper also adds control 
variables at the enterprise and city levels. Among them, the 



 

98 

control variables at the firm level are the intermediate input 
ratio, the capital intensity and the age of the firm, and the 

control variables at the city level are GDP per capita. The 
results of the baseline regression are as follows: 

 
Table 1. Regression results of minimum wage and price plus benchmarks 

 (1) (2) (3) (4) 
VARIABLES ln markup ln markup ln markup ln markup 

     
minwage -0.0621*** -0.0031*** -0.0031*** -0.0097*** 

 (-143.90) (-3.71) (-3.71) (-8.39) 
ln minput  -1.3382*** -1.3382*** -1.3288*** 

  (-594.53) (-594.56) (-492.06) 
ln kl  0.0059*** 0.0059*** 0.0055*** 

  (43.13) (43.12) (34.07) 
ln age  0.0015*** 0.0015*** 0.0008*** 

  (7.46) (7.45) (3.81) 
ln pergdp    0.0130*** 

    (11.64) 
Constant 1.2054*** 1.5611*** 1.5612*** 1.3485*** 

 (449.64) (287.01) (287.00) (102.33) 
Firm fixation effect No Yes Yes Yes 

Fixed year effect No Yes Yes Yes 
Province fixation effect No No Yes Yes 

Observations 706,504 584,353 584,352 375,962 
R-squared 0.028 0.933 0.933 0.939 

Note: The values in brackets are t statistics. * * *, * * and * are significant at levels of 1%, 5% and 10%, respectively. The 
following table is the same 

 
In column (1), we only add the minimum wage of the 

explained variable but not the control variable. The result 
shows that the price markup decreases and the bargaining 
power decreases as the minimum wage rises. For every 10% 
increase of minimum wage, the price markup of Chinese 
manufacturing decreases by 0.6%, that is, the bargaining 
power of Chinese manufacturing decreases by 0.6%, and the 
regression coefficient is significant at 1%. (2) Based on the 
fixed effect of controlling enterprises and years, control 
variables such as intermediate input ratio, capital intensity 
and age of enterprises are added. The result shows that the 
effect of minimum wage on China's manufacturing price 
markup is still negative at a regression coefficient of 1%. The 
price markup of China's manufacturing industry decreases by 
0.03% with every 10% increase of minimum wage, that is, its 
bargaining power decreases by 0.03%. The baseline 
regression results for the provinces added to column (3) on 

the basis of column (2) are similar to those for column (2). 
Column (4) adds the control variable of GDP per capita at the 
city level on the basis of column (3), and the effect of 
minimum wage on China's manufacturing price markup is 
significantly negative. For every 10% increase in the 
minimum wage, China's manufacturing price markup falls by 
0.09%, which means that its bargaining power is weakened 
by 0.09% and the regression coefficient is significant at 1%. 

3.2. Robustness test 
In the benchmark regression, the minimum wage of the 

county (city) of the current period is used as an independent 
variable. In order to confirm the robustness of the conclusion 
that the increase of the minimum wage will inhibit the cost 
plus, this paper chooses to replace this variable with the 
minimum wage of the county (city) of the lag period. The 
results are as follows: 

 
Table 2. Robust Test Regression Results 

 
VARIABLES 

(1) 
ln markup 

(2) 
ln markup 

(3) 
ln markup 

minwage -0.0198*** 
(-97.27) 

-0.0039*** 
(-6.55) 

-0.0039*** 
(-6.55) 

Control variable No Yes Yes 
Firm fixation effect No Yes Yes 

Fixed year effect No Yes Yes 
Province fixation effect No No Yes 

Observations 395,549 308,385 308,385 
R-squared 0.023 0.800 0.800 

 
In column (1), we only add the minimum wage of the 

explained variable in this paper without adding the control 
variable and the fixed effect of enterprises, years and 
provinces. Each 10% increase in the minimum wage will 
result in a 0.19% drop in the price markup of China's 
manufacturing sector, which means that the bargaining power 

of China's manufacturing sector is weakened by 0.19% and 
the regression coefficient is significant at 1%. (2) Based on 
the fixed effect of controlling enterprises and years, control 
variables such as intermediate input ratio, capital intensity 
and age of enterprises are added. The result shows that the 
effect of minimum wage on China's manufacturing price 



 

99 

markup is still negative at a regression coefficient of 1%. The 
price markup of China's manufacturing industry decreases by 
0.03% with every 10% increase of minimum wage, that is, its 
bargaining power decreases by 0.03%. The regression results 
of the provinces fixed effect listed in (3) on the basis of the 
second column are consistent with those of the second column. 

4. Conclusions and Recommendations 

4.1. Conclusion 
In recent years, with the implementation of the minimum 

wage policy nationwide, the minimum wage has increased the 
labor cost of manufacturing industry. At present, China's 
manufacturing industry is still facing the problem of 
overcapacity, such as the urgent need for transformation and 
upgrading. 

The results show that the impact of minimum wage policy 
on the bargaining power of manufacturing industry is a kind 
of cost effect, and it is difficult for enterprises to adapt to the 
improvement of minimum wage standard. The main reason is 
that the increase in the minimum wage will increase labor 
costs in the manufacturing sector in the short term, while the 
manufacturing-related enterprises will not be able to achieve 
higher production efficiency through capital adjustment, 
rapid innovation and improved technology in the short term, 
resulting in the productivity increase effect caused by the 
increase in the minimum wage that cannot offset the cost 
effect. As a result, most manufacturing firms have responded 
to the minimum wage hike with a lower price markup, but 
with a weaker bargaining power. 

4.2. Recommendations 
First，we will take various measures to raise the income of 

workers. It is undeniable that the implementation of the 
minimum wage policy is beneficial to the increase of the 
income level of laborers. However, it cannot be ignored that 
with the increase of the minimum wage, the price markup of 
China's manufacturing industry decreases, which leads to the 
weakening of the bargaining power of the manufacturing 
industry and disadvantage in competition. Therefore, when 
implementing and adjusting the policy on minimum wage 
standards, we shall not only take into account the legitimate 
rights and interests of laborers, but also fully consider the 
impact of minimum wage standards on the price markup and 
price advantage of manufacturing industries, so as to avoid 
considering one thing and losing another. While raising the 
minimum wage, the government can formulate other effective 
livelihood protection policies to increase the income level of 
workers, so as to protect the legitimate rights and interests of 
workers and further narrow the income gap. 

Second, efficiency and fairness should be considered when 
setting minimum wage standards. The minimum wage will 
have an adverse impact on China's manufacturing sector in 
the short term, especially for labor-intensive manufacturing 
enterprises, whose cost burden will be greatly increased and 
their bargaining power significantly reduced. Most of these 
manufacturing enterprises are small and medium-sized 
private enterprises, which employ a considerable proportion 
of our labor force. Therefore, when protecting the legitimate 
rights and interests of low-wage workers, local governments 
shall properly consider the impact on the manufacturing 
industry, and include such impact in the formulation of 
minimum wage standards. When setting the minimum wage 
level, they shall pay attention to whether it is in line with the 

local actual conditions and local economic affordability, and 
prevent blind comparison between regions, so as to ensure 
both fairness and efficiency. 

Third, promote active innovation in manufacturing 
enterprises. Although the cost effect of the minimum wage 
leads to the reduction of the price markup of the 
manufacturing industry, enterprises can improve their pricing 
ability by actively innovating and improving production 
technology and production efficiency, and offset the cost 
effect caused by the minimum wage increase with the 
productivity increase effect. Therefore, the government 
should take appropriate measures to encourage export 
enterprises to actively innovate. Firstly, the government shall 
strengthen the protection of intellectual property rights, 
patents and technologies of enterprises, further improve the 
relevant laws and regulations, and provide a more incentive 
external environment for promoting the technological 
innovation and the research and development of new products 
of export enterprises, so as to enhance the independent 
innovation capacity of enterprises. 

Finally, the minimum wage adjustment is combined with 
the optimization of the resource integration capability of 
manufacturing enterprises. Although the minimum wage 
adjustment can improve the mismatch of enterprise resources, 
but the iron still needs its own hard. Accompanying with the 
economic globalization is the international flow of factor 
resources, which is the microcosmic foundation of the global 
economy and determines the important contents of the 
contemporary world economy, such as the pattern of world 
growth, international income distribution and the division of 
global value chain. Therefore, the ability of resource 
integration is a very important ability that manufacturing 
enterprises must possess in order to stand on the fierce 
international market competition. The Chinese manufacturing 
enterprises must have global strategic vision and the ability to 
integrate factor resources in the world if they want to realize 
the rising of the division of labor in the global value chain. 
Because transnational enterprises are the organization form of 
investment globalization, the organizer of factor flow, and the 
indispensable medium of enterprises to participate in 
economic globalization. The government should carry out the 
minimum wage policy step by step according to local 
conditions on the basis of comprehensive evaluation of the 
economic effect of the minimum wage. 

Acknowledgment 
Supported by Hunan Provincial Innovation Foundation For 

Postgraduate (CX20220765); Hunan Provincial Natural 
Science Foundation(2021JJ3116). 

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