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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)gmail.com
Article Number: | Pages: | | DOI:
Received: October 28, 2016 Accepted: December 2, 2016 Published: December 16, 2016
Abstract
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.
Keywords: Firm performance, compensation structure.