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Interest rate liberalization and labor cost stickiness: A quasi-natural experiment from China

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  • Wang, Tiantian
  • Wei, Qian
  • Sun, Ruiqi

Abstract

Financial policy reforms can change the financing environment for enterprises, thereby affecting resource allocation. Taking the comprehensive liberalization of loan interest rates by the People's Bank of China in 2013 as a natural experiment, we investigate the relationship between interest rate liberalization and labor cost stickiness. Empirical results demonstrate that interest rate liberalization can significantly increase labor cost stickiness, and this finding remains robust even after conducting a series of rigorous tests. Further tests based on regional, industry, and enterprise characteristics reveal that the impact of interest rate liberalization on labor cost stickiness is more pronounced in regions with high bank monopoly, labor-intensive industries, and enterprises with distant bank-enterprise relationship. The Findings not only improve our understanding of cost management behavior in enterprises, but also shed light on the formulation and optimization of financial policies.

Suggested Citation

  • Wang, Tiantian & Wei, Qian & Sun, Ruiqi, 2025. "Interest rate liberalization and labor cost stickiness: A quasi-natural experiment from China," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 1663-1675.
    • Handle: RePEc:eee:ecanpo:v:85:y:2025:i:c:p:1663-1675
    DOI: 10.1016/j.eap.2024.12.025
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    More about this item

    Keywords

    Interest rate liberalization; Labor cost stickiness; Financial liberalization; Enterprise cost management;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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