Is Loss of Political Connection a Gain for Labor? The Effect of Anti-Corruption Policy on Labor Protection in China

Abstract

This paper studies the relationship between political connections and corporate compliance with labor protection. Utilizing a sudden disruption of political connections due to an anti-corruption policy, the paper finds that depoliticization improves firms’ compliance with the social security law. Furthermore, using court data, the analysis finds that depoliticization increases firms’ legal risk in labor disputes. It also finds that the effect of depoliticization on firms’ social security contributions is greater in provinces with strong enforcement and when the connected official has a closer relationship with local governance, while the effect is attenuated if firms are state-owned enterprises or less labor intensive. Moreover, the paper finds no evidence that depoliticization affects firms’ other forms of employment benefits.

Keywords: Labor protection; Social security contribution; Anti-corruption; Political connection

JEL Classification: J08; D73; P30; G38