Labor Flexibility, Ownership and Firm Performance in China

Julia Lane, Harry G. Broadman and Inderjit Singh

Review of Industrial Organization, 1998, vol. 13, issue 6, 635 pages

Abstract: Developed and developing countries alike are privatizing or corporatizing state owned enterprises (SOEs), often citing the flexibility to hire and shed labor as an advantage. However, there is little empirical evidence on the extent to which this improves firm performance. This paper investigates the linkage between labor flexibility, ownership and firm performance using China as a case study. We find that SOEs are much less able to adjust quickly to demand shocks than are other ownership forms and that the degree of worker input into hiring and firing decisions slows the ability of firms to adapt, negatively affecting firm performance.

Date: 1998
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