Costly Labor Adjustment: Effects of China's Employment Regulations

35 Pages Posted: 31 Mar 2012

See all articles by Russell Cooper

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

Peking University - National Policy Lab, National School of Development

Date Written: March 2012

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.

Suggested Citation

Cooper, Russell W. and Gong, Guan and Yan, Ping, Costly Labor Adjustment: Effects of China's Employment Regulations (March 2012). NBER Working Paper No. w17948. Available at SSRN: https://ssrn.com/abstract=2031956

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, AK Shanghai 200433
China

Ping Yan

Peking University - National Policy Lab, National School of Development ( email )

China

Register to save articles to
your library

Register

Paper statistics

Downloads
15
Abstract Views
329
PlumX Metrics