Costly Labor Adjustment: Effects of China's Employment Regulations
AbstractThis 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.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17948.
Date of creation: Mar 2012
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Find related papers by JEL classification:
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
- O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
- P2 - Economic Systems - - Socialist Systems and Transition Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-10 (All new papers)
- NEP-BEC-2012-04-10 (Business Economics)
- NEP-CWA-2012-04-10 (Central & Western Asia)
- NEP-LAB-2012-04-10 (Labour Economics)
- NEP-MAC-2012-04-10 (Macroeconomics)
- NEP-REG-2012-04-10 (Regulation)
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