Costly Labor Adjustment: General Equilibrium Effects of China's Employment Regulations

Russell Cooper, Guan Gong, Ping Yan

NBER Working Paper No. 19324
Issued in August 2013
NBER Program(s):   EFG

This paper studies the employment and productivity implications of new labor regulations in China. These new policies were 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, increase labor reallocation and increase wages. The estimated elasticity of labor demand implies that an increase in the base wage leads to sizable job losses.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19324

Users who downloaded this paper also downloaded these:
Freeman and Li w19254 How Does China's New Labor Contract Law Affect Floating Workers?
Cooper, Gong, and Yan w16498 Dynamic Labor Demand in China: Public and Private Objectives
Cooper, Gong, and Yan w17948 Costly Labor Adjustment: Effects of China's Employment Regulations
Chi, Freeman, and Li w17721 Adjusting to Really Big Changes: The Labor Market in China, 1989-2009
Holmes, McGrattan, and Prescott w19249 Quid Pro Quo: Technology Capital Transfers for Market Access in China
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us