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SM Jung

Issues in Business Management and Economics
Vol.4 (8), pp. 86-95 December, 2016
ISSN 2350-157X
Available online at
Article ID /BM/16/052/10 pages
Author(s) retain the copyright of this article. Author(s) agree that this article remain permanently open access under the terms of the Creative Commons Attribution License 4.0 International License.

Original Research Article

The effect of wage growth in research and development on firms’ productivity: Evidence from a Chinese firm database

Samuel Moon Jung

The Graduate Center, The City University of New York, USA.

Author’s E-mail: christmasnoon(at)

date Received: October 28, 2016     date Accepted: December 2, 2016     date Published: December 16, 2016


China’s economic reforms were successful in its move from a planned economy to a socialist market economy despite huge limitations such as socialism and the dominance of state ownership. In the 3rd course of reforms in China, privately-owned companies exceeded 50% of the national GDP (Gross Domestic Product) and further expanded. This paper illustrates the effect of research and development (R&D) and science and technology (S&T) wage growth on firms’ productivity after the Chinese corporate governance reform. According to the literature, R&D and S&T wage growth are critical contributors to firms’ productivity. First, by examining Chinese companies’ data from 1995 to 2004 during the 3rd course of reforms, this study investigated how state-owned companies are less profitable than those undergoing privatization and foreign acquisition. Secondly, analysis of compensation ratio variables such as average wage of R&D and S&T labor reveals that firms’ productivity is positively correlated with the average wage of R&D or S&T labor. These results are consistent with the literature, which suggest that firms with better incentive structures perform better in a transition economy.

JEL codes: D24; J31; O32.

Key words: Firm performance, compensation structure.