Dynamic Labor Demand in China: Public and Private Objectives

39 Pages Posted: 1 Nov 2010  

Russell Cooper

University of Texas at Austin - Department of Economics; National Bureau of Economic Research (NBER)

Guan Gong

Shanghai University of Finance and Economics

Ping Yan

affiliation not provided to SSRN

Date Written: October 2010

Abstract

This paper studies dynamic labor demand by private and public manufacturing plants in China. It contributes along two dimensions. First, it uncovers the objectives of public enterprises and compares them to private enterprises. Second, it estimates adjustment costs of these plants and thus their (dynamic) labor demand. One of our principal findings is that public plants maximize the discounted present value of profits without a soft-budget constraint. There is strong evidence of both quadratic and linear firing costs at the plant level. Costs of adjusting hours are small and lower for private compared to public plants. The private plants operate with considerably lower quadratic adjustment costs. The higher quadratic adjustment costs of the public plants may reflect their internalization of social costs of employment adjustment. Domestic private plants and collective plants have about the same discount factor, much lower than state controlled plants.

Suggested Citation

Cooper, Russell and Gong, Guan and Yan, Ping, Dynamic Labor Demand in China: Public and Private Objectives (October 2010). NBER Working Paper No. w16498. Available at SSRN: https://ssrn.com/abstract=1699575

Russell W. Cooper (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Guan Gong

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, Shanghai 200433
China

Ping Yan

affiliation not provided to SSRN

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