Estimation of China's labor demand elasticity
【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;
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