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Labor protection and firms’ risk-taking behavior: evidence from China’s New Labor Contract Law

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Listed:
  • Che, Yi
  • Li, Xuchao
  • Zhang, Yan
  • Zhao, Lin

Abstract

China’s new Labor Contract Law (LCL), which came into force in 2008, has greatly improved the protection of workers and increased the cost of labor. This study employs the cross-sectional variation in labor intensity and time variation before and after the new LCL, to investigate its impact on firms’ risk-taking behavior. The analysis finds strong and robust evidence that the LCL increased the risk-taking of firms in industries with higher labor intensity. The increased risk-taking mainly arose among firms in regions with stricter law enforcement, firms that were less law abiding before the new LCL, as well as non-state-owned firms and efficient firms. The study also identifies two key mechanisms through which the new LCL increased firms’ risk-taking behavior: capital deepening and productivity improvement.

Suggested Citation

  • Che, Yi & Li, Xuchao & Zhang, Yan & Zhao, Lin, 2024. "Labor protection and firms’ risk-taking behavior: evidence from China’s New Labor Contract Law," Journal of Asian Economics, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:asieco:v:91:y:2024:i:c:s1049007824000083
    DOI: 10.1016/j.asieco.2024.101713
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    More about this item

    Keywords

    Labor protection; Risk-taking; China; Labor Contract Law;
    All these keywords.

    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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