Costly Labor Adjustment: Effects of China's Employment Regulations

Russell Cooper, Guan Gong and Ping Yan

No 17948, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the employment and productivity implications of new labor regulations in China. These new restrictions are intended to protect workers' employment conditions by, among other things, increasing firing costs and increasing compensation. We estimate a model of costly labor adjustment from data prior to the policy. We use the estimated model to simulate the effects of the policy. We find that increases in severance payments lead to sizable job creation, a significant reduction in labor reallocation and an increase in the exit rate. A policy of credit market liberalization will reduce employment, slightly increase labor reallocation and reduce exit. The estimated elasticity of labor demand is about unity so that an increase in the base wage leads to sizable job losses.

JEL-codes: E24 J08 J23 O38 O53 P2 (search for similar items in EconPapers)
Date: 2012-03
New Economics Papers: this item is included in nep-bec, nep-cwa, nep-lab, nep-mac and nep-reg
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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