Government Intervention and Labor Investment Efficiency: Evidence from China’s Industrial Policy

Wenfei Li and Cen Wu

Emerging Markets Finance and Trade, 2023, vol. 59, issue 5, 1487-1497

Abstract: This study examines whether government intervention via industrial policy affects labor investment efficiency. Covering two of China’s Five-Year Plans spanning 2006–2015, we find that indirect government intervention via industrial policy results in lower employee numbers and higher labor investment efficiency. The effect is stronger in state-owned enterprises (SOEs), especially in SOEs controlled by local government, and in regions with weaker market-based institutions. The effect operates through reducing over-hiring, but not reducing under-hiring, under-firing, or over-firing. Overall, our results indicate that indirect government intervention via industrial policy improves labor investment efficiency by alleviating local Chinese governments’ intervention on firms.

Date: 2023
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DOI: 10.1080/1540496X.2022.2147782

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