The Rising Labour Costs and the Servitisation of Manufacturing Enterprises: An Empirical Investigation of Chinese Enterprises

ABSTRACT On the back of steadily rising labour costs, driving the servitisation of China's manufacturing industry holds significant importance. This study calculates highly refined indicators of enterprises' investment in servitisation and, in conjunction with data on minimum wages in counties and districts, examines how increasing labour costs affect enterprise investments in servitisation. The research reveals that the significant rise in labour costs notably boosts the level of enterprises' investment in servitisation. By decomposing the level of servitisation of enterprises' inputs into domestic and foreign parts, it is found that the increase in labour costs has mainly and significantly promoted the domestic level of servitisation of enterprises' inputs. This influence exhibits heterogeneity in terms of enterprise ownership, trade modes, regions, skilled labour, and factor intensity. From a mechanism perspective, the increase in labour costs primarily impacts enterprises' investment in servitisation by the endogenous development mechanism of enterprises and the collaborative mechanism of industrial chains among enterprises. Further studies indicate that the rise in labour costs drives various features in the transformation of enterprises' investment in servitisation, including substitution effects, strengthening effects of legal systems, and the impact of automation replacing human labour.