This study examines whether and how minimum wage hikes affect workers’ strikes in the context of China. We show that minimum wage significantly increases strikes at the city-level, and this effect is mainly motivated by demands for unpaid wages and severance pay. Mechanism analysis reveals that workers’ strikes are caused by inevitable involuntary unemployment arising from wage hikes. In addition, the increase in workers’ strike activities is more significant in tertiary industries, which require a larger share of low-wage workers and in regions with a higher degree of digital economy and innovation. Our findings provide clear policy implications for policymakers concerned with minimum wage and unemployment.

Using a proprietary bank-loan-level dataset, we find a surprising negative relation between loan spreads and minimum wage. We propose a stylized model to explain the relation: banks filter out the low-quality borrowers after the wage shocks, resulting in a separating equilibrium. Our evidence is consistent with the model’s predictions: (1) city-level and firm-level evidence shows that an increase in minimum wage is negatively associated with the likelihood of obtaining bank loans, especially for labor-intensive borrowers, (2) deal-level evidence shows that both the average default rate and loan spreads decrease when minimum wage rises, and (3) subsequently, labor intensive firms that are still able to obtain bank loans when minimum wage rises outperform their peers. Our findings suggest that as more credit resources are allocated to better quality firms and leave other firms far more behind, the existence of such credit reallocation effects can exacerbate the divergence between higher and lower quality firms induced by an increase in minimum wages.

Declining worker bargaining power has been advanced as an explanation for dramatic generational changes in the U.S. macroeconomic environment such as the substantial decline in labor’s share of the national income, the loss of consumer purchasing power, and growing income and wealth inequality. In this paper, we investigate microeconomic implications by examining the effect of declining worker power on firm-level investment responses to a labor cost shock (mandated increases in the minimum wage). Over the past four decades, we find that investment-wage sensitivities go from negative to insignificant as management becomes less constrained and can pursue outside options. Consistent with drivers of weakening worker power, investment-wage sensitivity changes are more significant for firms that are more exposed to globalization, technological change, and declining unionization.