Labor protection and firms’ risk-taking behavior: evidence from China’s New Labor Contract Law

Yi Che, Xuchao Li, Yan Zhang and Lin Zhao

Journal of Asian Economics, 2024, vol. 91, issue C

Abstract: China’s new Labor Contract Law (LCL), which came into force in 2008, has greatly improved the protection of workers and increased the cost of labor. This study employs the cross-sectional variation in labor intensity and time variation before and after the new LCL, to investigate its impact on firms’ risk-taking behavior. The analysis finds strong and robust evidence that the LCL increased the risk-taking of firms in industries with higher labor intensity. The increased risk-taking mainly arose among firms in regions with stricter law enforcement, firms that were less law abiding before the new LCL, as well as non-state-owned firms and efficient firms. The study also identifies two key mechanisms through which the new LCL increased firms’ risk-taking behavior: capital deepening and productivity improvement.

Keywords: Labor protection; Risk-taking; China; Labor Contract Law (search for similar items in EconPapers)
JEL-codes: J32 J33 J38 L22 L25 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:91:y:2024:i:c:s1049007824000083

DOI: 10.1016/j.asieco.2024.101713

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