Estimation of China's labor demand elasticity

LI Juan1 WU Jianli1

(1.International Business School, Southwestern University of Finance and Economics, Chengdu Sichuan, China 611130)

【Abstract】Labor demand elasticity, which reflects the sensitivity of firm's labor demand relative to wage rate, can be used as an indicator to measure the fluctuation of labor market as well as the volatility of labors' income. This paper applies large micro firm-level database to estimate China's labor demand elasticity and furthermore gives necessary robustness checks, which is the first literature in this field to our best knowledge. In this paper, we conclude that: the labor demand elasticity of China's industrial firms is in the reasonable range (between −0.75 and −0.15 according to the previous literature); in the period of 1998–2009, the overall degree of labor market fluctuation in China appears slow fluctuation which indicates that China's labor market conditions and stability tend to be well improved. This empirical result, to a large extent, is due to labor demand elasticity of the large share of domestic firms in the whole China's economy tends to be smaller during this period of 1998–2009, while exported-oriented firms' labor demand is more elastic due to substitutability effect and scale effect. Therefore, workers employed by these exported-oriented units are more likely to bear fluctuation risks.

【Keywords】 labor demand elasticity; employment fluctuation; micro firms data; ownership;

【DOI】

【Funds】 National Natural Science Foundation for Young Scholar of China (Grant No. 71403216): "Employment protection legislation and labor market effect under trade openness conditions: a study based on dual heterogeneity of enterprises and individuals" Sichuan Key Project in Philosophy and Social Science (Grant No. SC14A004): "Developing inland open economy in Sichuan" Southwestern University of Finance and Economics Project of "Special Fund for Basic Scientific Research in Centrally-affiliated Universities" (Grant No. JBK150205): "Employment protection legislation and MNCs’ direct investment location decision under the view of legal economics: based on global macro and micro evidence" Sichuan Universities Scientific Research Innovation Group (Grant No. JBK130504): "Free trade zone strategy and renminbi zone"

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This Article

ISSN:1004-129X

CN: 22-1017/C

Vol 37, No. 06, Pages 93-102

November 2015

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Article Outline

Abstract

  • 1 Introduction
  • 2 Modelling, variable design and data processing
  • 3 Empirical result and analysis
  • 4 Conclusion and policy implications
  • References