Industrial Relations in the World's Workshop: Participatory Legislation, Bottom-Up Law Enforcement, and Firm Behavior

Abstract

In 1994 the National People’s Congress of the People’s Republic of China passed the first national labor law since the founding of the republic in 1949. The 1994 Labor Law was an important legislation step in the unification of the bifurcated transitional economy, divided between the plan and the market. The law liberalized labor markets, established a new system of contract employment, and set up some basic rights and responsibilities of employers and employees. In the decade that followed the passage of this law, Chinese labor legislation and implementation of laws and regulations tended to expand employer autonomy and control at the expense of workers’ rights and security. Protective efforts emanating from the central government were weakened at the local legislative and implementation stages due to regional competition for foreign direct investment and close ties between state officials and enterprise owners and managers.

In 2007, the National People’s Congress passed three important labor laws that significantly enhanced workers’ rights and employment security. The legislative process was marked by lively public debate about the laws and increased public participation in the legislation. The passage of these laws seems to mark the beginning of a new era of labor legislation in which workers are more knowledgeable about legal protections and the central government is more aggressive in pushing a development model that is not solely oriented around growth.

In the period since the laws’ passage, labor disputes in China have doubled with major manufacturing centers like the Yangtze and Pearl River Deltas seeing dispute increases up to 300%.

With the severe impact of the global economic crisis on China’s export sectors, workers responded to layoffs and other employment changes with a wave of filings against their employers. As China's economy recovered in 2009-10, workers continued to act contentiously, with a spate of strikes in foreign-invested enterprises and pressure on companies to raise wages and improve conditions.

This paper examines the post-2007 period of more stringent labor legislation through an examination of the local responses to central government attempts to enhance workers’ rights. We argue that the Global Financial Crisis, local competition for investment, and close ties between employers and local governments reduced the state's ability to implement and enforce the new protections promulagated in 2007. However, workers’ heavy use of the legal system for dispute resolution points to a new kind of “bottom-up enforcement” of labor laws in which legal action by workers reinforces central government attempts to improve local implementation of central laws. We hypothesize that fear of worker-initiated litigation leads to changes in firm behavior in regions with high rates of disputes. Firms adjust to the new protections offered by the law by increasing protection for some kinds of workers and reducing protections for other kinds of workers. The paper highlights the inequality of legal protections at the workplace in China, both across region and across types of workers.