What did China’s labor contract law do to its private manufacturing firms?

Ping Yan

China Economic Journal, 2015, vol. 8, issue 2, 158-171

Abstract: Well-intended employment protection legislation may have adverse consequences. This paper uses Chinese firm-level data to assess the impacts of China’s Labor Contract Law, effective on January 1, 2008. My results show that, relative to public firms, private firms as a whole were negatively affected in terms of firm-level year-to-year employment changes. The law had negligible effects on employment and wages in firms with high wages. At the same time, employment fell and wages rose in firms with low wages. Moreover, firms who did not train workers intensively to acquire firm-specific skills had more job turnover than firms who did. Finally, I study how labor demand responded to the law along the extensive margin. For regions that experienced abrupt declines in labor mobility, possibly due to stricter labor regulation enforcement following the enactment of the Labor Contract Law, firm exit rose significantly, suggesting large incidence of mass layoff.

Date: 2015
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DOI: 10.1080/17538963.2015.1070492

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