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Does government investment push up manufacturing labor costs? Evidence from China

Economics

Does government investment push up manufacturing labor costs? Evidence from China

Y. Liuyi, Z. Yunchan, et al.

This research by Yang Liuyi, Zhu Yunchan, and Ren Feirong delves into China's soaring manufacturing labor costs, revealing how government infrastructure investment fuels demand and pushes costs higher. The study presents eye-opening empirical findings that show a direct correlation between government spending and labor cost inflation. Discover how managing these investments can ensure sustainable development for enterprises in China.

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Playback language: English
Abstract
This paper investigates the rapid increase in China's manufacturing labor costs, focusing on the role of government investment. The authors argue that government preference for infrastructure investment creates labor demand and increases labor costs. Additionally, infrastructure improvements lower transaction costs for businesses, leading to production expansion and further cost increases. Empirical findings, supported by robustness tests, indicate that a 1% increase in government investment leads to a 0.0013-unit rise in unit labor cost and a 1.443-unit increase in nominal labor cost. The paper concludes that China should manage government investment to maintain moderate labor cost growth and ensure sustainable enterprise development.
Publisher
Humanities & Social Sciences Communications
Published On
Oct 12, 2023
Authors
Yang Liuyi, Zhu Yunchan, Ren Feirong
Tags
China
manufacturing labor costs
government investment
infrastructure
transaction costs
labor demand
sustainable development
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