# Does the opening of producer services promote the wage growth of the downstream manufacturing industry?—Empirical evidence from Chinese manufacturing listed companies

## TL;DR

This study examines how opening producer services affects wages in downstream manufacturing in China, finding an inverted-U-shaped relationship.

## Contribution

The paper introduces a novel theoretical model and empirical analysis of producer services' impact on manufacturing wages in China.

## Key findings

- The opening of producer services has an inverted-U-shaped effect on downstream manufacturing wage growth.
- The impact occurs mainly through labor productivity and labor income share channels.
- Capital and technology-intensive industries benefit more from producer services opening.

## Abstract

Based on the vertical connection between upstream and downstream industries, a unique theoretical model is constructed to analyse the impact mechanism of the opening of producer services on downstream manufacturing wage growth. The empirical tests are carried out using the data of China’s manufacturing listed companies from 1999 to 2020. Our findings indicate that the opening of producer services has an inverted-U-shaped impact on downstream manufacturing wage growth, and the average level of the opening of producer services in the sample period is lower than the corresponding threshold. Overall, it is in the stage of promoting the wage growth of the downstream manufacturing industry. The opening of producer services mainly affects the wage growth of the downstream manufacturing industry through two channels: labour productivity and labour income share. The results of heterogeneity analysis show that the wages of capital and technology-intensive and low-competitive manufacturing industries are relatively strongly promoted by the opening of producer services. Therefore, promoting the orderly opening of producer services and strengthening the technological links between industries will help promote the wage growth of downstream manufacturing industries.