NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Dynamic Labor Demand in China: Public and Private Objectives

Russell Cooper, Guan Gong, Ping Yan

NBER Working Paper No. 16498
Issued in October 2010, Revised in April 2013
NBER Program(s):Economic Fluctuations and Growth

This paper studies dynamic labor demand by private and public manufacturing plants in China. It contributes along two dimensions. First, it uncovers the objectives of public enterprises and compares them to private enterprises. Second, it estimates adjustment costs of these plants and thus their (dynamic) labor demand. One of our principal findings is that public plants maximize the discounted present value of profits without a soft-budget constraint. There is strong evidence of both quadratic and linear firing costs at the plant level. Costs of adjusting hours are small and lower for private compared to public plants. The private plants operate with considerably lower quadratic adjustment costs. The higher quadratic adjustment costs of the public plants may reflect their internalization of social costs of employment adjustment. Domestic private plants and collective plants have about the same discount factor, much lower than state controlled plants.

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Document Object Identifier (DOI): 10.3386/w16498

Published: Russell Cooper & Guan Gong & Ping Yan, 2015. "Dynamic labor demand in China: public and private objectives," The RAND Journal of Economics, vol 46(3), pages 577-610.

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