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Labor protection and the efficiency of human capital investment

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  • Guo, Jing
  • Tang, Qi
  • Jin, Guangzhu

Abstract

This paper investigates the impact of labor protection on the labor investment efficiency of labor-intensive enterprises. Based on data from A-share listed companies in China, we introduce difference-in-differences design to identify the impact of The Labor Contract Law on enterprises’ employment investment and business decision-making. We find that improving labor protection reduces the efficiency of labor investment in labor-intensive enterprises. Improvements in labor protection also cause over-employment, especially in state-owned enterprises. Further tests suggest that labor protection affects the expansion of employees in different ways in state-owned and private enterprises. In private enterprises, labor protection promotes the adjustment and upgrading of human capital structures. We also find that labor protection can improve labor costs for labor-intensive enterprises, but that it has a negative effect on enterprise innovation. This paper provides a clear policy reference for understanding the structural distortion of human capital in the transformation and upgrading of Chinese enterprises.

Suggested Citation

  • Guo, Jing & Tang, Qi & Jin, Guangzhu, 2021. "Labor protection and the efficiency of human capital investment," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 195-207.
    • Handle: RePEc:eee:ecanpo:v:69:y:2021:i:c:p:195-207
    DOI: 10.1016/j.eap.2020.12.006
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