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Do Rising Labour Costs Drive Innovation in Enterprises? Propensity Score Matching Evidence from Chinese Firms

This paper uses a monopolistic competition model and propensity score matching (PSM) with Chinese firm-level data to determine whether rising labour costs drive innovation within enterprises. The results indicate that rising wages do drive firms to invest more in R&D and use more capital to substitute for labour to minimize costs, which improves total factor productivity. The results are verified by several robustness tests.