Employment Effects Of Zombie Companies

In recent years,China's manufacturing industry has made great progress.At the same time,the problems of over-investment and overcapacity in steel and coal industries have become more and more prominent,and a number of zombie enterprises that rely on government subsidies to survive barely have emerged.It has lowered the efficiency of social resource allocation and the efficiency of business operations,and has hindered economic transformation and upgrading.In 2015,the central government proposed to carry out the supply-side reforms.It is especially important to complete the work of retiring existing zombie enterprises and suppressing the formation of new zombie enterprises.As we all know,the government's continuous "blood transfusion" for those insolvent enterprises is one of the main reasons for the emergence of zombie enterprises.The motive behind the government's "blood transfusion" behavior is mainly to stabilize employment and maintain social stability.So does the government's continued "blood transfusion" behavior achieve its goals? Can zombie enterprises improve their social employment levels?According to the actual situation of Chinese zombie enterprises,with reference to Wanjun Wang et al.(2018),this paper revises the classic identification method of zombie enterprises,which is CHK model,and introduces cash flow indicators to identify the zombie enterprises in industrial enterprises above designated size in Jiangxi Province from 1998 to 2007,and constructs an empirical model,focusing on the employment effects of zombie companies.The study finds that zombie companies have higher debt ratios,poorer solvency,lower return on assets,lower financing costs and lower production efficiency,comparing with non-zombie enterprises.In the past 10 years from 1998 to 2007,the proportion of zombie enterprises,the number of employees,total assets and total liabilities decreased as a whole.Among zombie enterprises,state-owned enterprises accounted for the highest proportion.The increase in the proportion of zombie enterprises will have a crowding out effect on the employer's ability to absorb employment,and the long-term effect will be greater than the short-term impact.In other words,the longer the duration of the zombie enterprise,the more unfavorable it is to improve the employer's ability to absorb employment.When studying the influence of zombie enterprises,it is necessary to add the individual fixed effect of the enterprise.Since the state of the zombie enterprise is continuous and stable,the average duration of the zombie enterprise is 2 years,so this paper adds the lagging term of the zombie enterprise based on the benchmark regression model to study the relationship between zombie enterprises and employment,which is to make the empirical regression result more stable,and at the same time it can improve the matching of the empirical model and the reality.The lagging effect of the proportion of zombie enterprises is added to fix the triple effects of individual,time and industry to control other factors that affect the employer's ability to absorb employment.The study finds that the ability of companies to absorb employment will decrease as the proportion of zombie companies increases.In the short-term,for every 1% increase in zombie enterprises,the employment absorption capacity of enterprises will drop by 0.525 percentage points.In the long run,zombie enterprises will be more destructive,and every 1% increase in the proportion of zombie enterprises will make enterprises long-term employment absorption capacity decreased by 3.824%.The impact of the existence of zombie enterprises on employment will change with the ownership of enterprises.In the short term,the change in the proportion of foreign zombie enterprises has a significant crowding out effect on employment,and the influence of other ownership zombie enterprises on the employment absorption capacity of enterprises is not significant.In concrete terms,the coefficient under state-owned and collective ownership is negative,and the coefficient under the private sector,Hong Kong,Macao and Taiwan and mixed ownership are positive.In the long run,the coefficient of absorption capacity of enterprises is positive,but others are negative.Whether in the longterm or short-term,the change in the proportion of foreign-funded zombie enterprises has the greatest impact on employment and is significantly negative.The above results are stable under different identification methods of zombie enterprise.Therefore,this paper believes that the government's continuous “blood transfusion” for zombie enterprises can temporarily retain the “rice bowl” of some employees,and it has certain employment stability effects,but its crowding-out effect on employment cannot be ignored.In the long run,the existence of zombie enterprises can not really achieve the effect of ensuring employment and maintaining social stability.Zombie enterprises should be retired as soon as possible,and the main contradiction of retiring zombie enterprises lies in the resettlement of state-owned enterprises and large enterprises.If it is not solved properly,the retreat work of zombie enterprises will be difficult to carry out in a smooth and orderly manner,and social instability will increase.Therefore,this paper suggests that relevant government departments should help the state-owned enterprises on capital budget and expenditures,solve the problem of staff resettlement costs and historical legacy through multiple channels,and divert and resettle employees through internal circulation,external transfer.