Study On The Micro-economic Effects Of Employment Protection And Conduction Mechanism

With the attenuation of demographic dividend and the gradual increase in labor cost,China's economy steps into the period of “New Normal”.In this context,the government,theory and practice sector emphasize that China should transform its economic growth from resource-driven and element-driven into innovation-driven,and promote the supply side structural reform in order to achieve China's economic stability and sustainable development.According to the relevant policies promulgated by the state,enterprises become the foundation in promoting reform and innovation.At the same time,in order to strengthen the protection of the legitimate rights and interests of workers,construct and develop harmonious and stable labor relations,the state advances related laws and regulations of labor protection through promoting the construction of minimum wage system,“labor contract law”,trade union system,and social insurance.With the implementation of the labor protection system,the employment protection is gradually increased,which takes a shock to corporate operation.The enterprise,however,is not completely passive in the face of such impacts and will take rational countermeasures.Under this background,it is of great significance for us to systematically analyze the impacts of employment protection and the countermeasures which companies took and effects of such measures from the micro perspective.Through the review and analysis of relevant literatures,we find that most of the theoretical and empirical papers about the economic effects of employment protection are focused on the sample of developed countries.Other papers referring to developing countries are mainly concentrated on India and South American,other areas are rarely involved(Betcherman,2015).However,due to the inherent characteristics of the national factor endowments and economic development stages,the conclusions from above papers cannot be simply transplanted to China,and provide reasonable explanation,prediction,and guide to the practice of labor protection in China.Studies combined with China's labor market system has just started,which mostly consider on macro level.There have been few results in further and systematic research from the micro perspective.At the same time,there is a fierce debate on the economic effects of legal system of China's labor protection.One holds that the implementation of above labor protection system is harmful to enterprise development by pushing up costs,those views even believe that employment protection would benefit no one.Another view is that strengthen of labor protection could form a forced mechanism which is conducive to build harmonious and stable labor relations,and stimulate employee's enthusiasm and sense of innovation,and ultimately protect the interests of three parties.During the evolution of China's label protection,academics did not provide more convincing evidences to the above argument.Therefore,this study is of theoretical value from this perspective.Based on the practical and theoretical background,this paper investigates the performance,economic effect and conduction mechanism on the micro effects of labor protection protection layer by layer: the impact of the strengthening of labor protection,the rational countermeasures took by enterprises,and the impact of enterprises' response.Specifically,our main work is summarized in the following aspects.Firstly,according to the economic behavior of institutional change and the theory of enterprise,this paper reviews relevant literatures from the labor protection standpoint,and analyzes its relationship with corporate behavior and corporate performance.Combined with the institutional background of China's labor protection,we discuss the evolution and characteristics of labor protection laws in China.This paper also explores the properties of China's labor market in the context of economic restructuring and the change in business behavior under the trend of strengthening labor protection.Secondly,using the sample of Chinese public companies,we empirically examines the impacts of labor protection on firms,especially on enterprise's labor cost,compensation and employment stickiness,and labor demand elasticity.The results indicate that the strengthening of labor protection has impact on the enterprise which includes improving distribution proportion of compensation,aggravating the labor compensation and employment stickiness,and reducing labor demand elasticity.Our findings imply that the labor costs and elements investment risk have increased,and the employment flexibility have decreased since the strengthening of labor protection.Thirdly,this paper inspects how firms are responding to the strengthening of labor protection,particularly from the following views: capital deepening,carrying out the technology innovation,inter-regional capital allocation,increasing operating leverage and improving labor allocation.We find the evidences that firms take the following actions to respond to labor protection: replace labor with capital which enhance the level of capital deepening;strengthen the technology innovation to cope with rising labor costs,increasing the possibility of cross-regional capital allocation in order to get comparative advantage in local labor market;raise the operating leverage and improve the employment allocation.Finally,this paper examines the effects of corporate's responses from the aspects of production efficiency,return on equity and market value.We find that firms have achieves already got obvious and effective achievements which are reflected as follows: firms' performance is enhanced after the strengthening of labor protection,production efficiency is improved by promoting capital deepening and innovation to cope with rising of labor costs,the return on equity is also increasing though boosting operating leverage,and the firms' market value is increasing by implementing cross-regional capital allocation and improving labor allocation.This paper suggests that,even though the labor protection has a negative impact on firms,rational enterprises could improve performance by taking effective response measures.The results illustrate that the enforcement of labor protection laws protects workers' legal interest and improves firms' performance,which achieves a win-win labor-capital relation.Compared with the existing literature,the main contributions of this paper are reflected in the following aspects:First of all,this paper innovatively presents an analytical framework which contains “motivation – response – effect” and takes the impacts of the strengthening of labor protection,the rational countermeasures took by enterprises,and the results of enterprises' response into an integrated system.The methodology mentioned above can not only effectively reveal the nature of the effect of labor protection on micro economies,but also help to clarify the mechanism of the aforementioned economic effects.Our findings can provide more widely and deeply explanation of the change process of micro economic behaviors and corresponding economic consequences in face of labor protection.In addition,this paper develops the theory of law and finance,as well as the theory of macro-economic policy and micro enterprise behavior.In the second place,this paper empirically examines the relationship between labor protection system and corporate behavior,considering three facets of labor protection system including minimum wage system,“labor contract law”,trade union system,social insurance.At the same time,we empirically address the rational response measures taken by enterprises in the face of the strengthening of labor protection and the response effect from multiple perspectives.Then,this paper can complement existing literature for depending on just one single dimension of the labor protection system,and broaden the researches referring to the labor protection and firm responses by increasing the reliability and comprehensiveness of the study.Last but not least,based on the institutional background of China's transitional economy,this paper deeply discusses the important and frontier issues encountered in the development of economy and society.Therefore,the conclusions we get have very high values in practices and applications.We find that the strengthening of labor protection in China has more positive effects.Our findings not only provide an convincing evidence for the debate of economic effects of China's labor protection system,but also help to refine and conclude the experience and theory of Chinese characteristics,thus providing experience for our government to develop and implement the labor market system.More importantly,this paper provides incremental contribution for the development of the theory and empirical research in the global perspective.