Poverty alleviation and firm productivity: Evidence from China's minimum wage system

The reduction of income inequality is important for poverty alleviation. We manually collect the data of the local minimum wage standard of the 254 prefectural cities of 31 provinces in China. The results show that higher minimum wage attributes to the rise of firm productivity. Minimum wage hikes force the enterprises to optimize internal production, reduce redundant employees, and develop innovations. Moreover, the enterprises with higher sensitivity in labor cost, less governmental support, and stronger financial pressures are more intensive to higher minimum wage. It is robust when choosing alternative measurements, an IV strategy, and a DID analysis. It is implicated that an appropriate minimum wage system plays a positive role in achieving balance between poverty alleviation and economic growth, and the improvement in compensation can stimulate high-quality development in practice. •Higher minimum wage urges firms enhancing productivity, the positive effect remains in long term.•The short-term hike of minimum wage drives internal optimizations of local enterprises in labor and innovation factors.•Firms with higher labor elasticity, financial pressures, and less external support acutely respond to higher minimum wage.