employment in exporting firms exposed to adverse export demand shocks was less sensitive to enforcement of labor regulations. The rest of the paper is organized as follows. Section 2 provides background information on the provisions and its enforcement, as well as the impact of the global Law’s economic crisis on employment in China. Section 3 provides a theoretical framework for assessing the impact of the new Law on employment, Section 4 introduces the data, Section 5 describes the methodology, Section 6 presents the empirical results, and Section 7 concludes. 2. An Eventful 2008: Labor Law Implementation and Global Economic Crisis As noted earlier, Labor Contract Law, which took effect on January 1, China’s 2008 2008, included provisions that were highly protective of important workers’ interests. Two aspects of the new Law were new regulations on the nature of contracts that employers were obligated to provide workers and the severance conditions for firing workers. Under the new Law, after a worker completes two fixed-term contracts, or ten years of employment, employment contracts must be made open-ended, or permanent. The probationary period for new contracts is limited to one to three months depending on the contract length. New regulations were passed to prevent the use of temporary work agencies, or labor service companies, to circumvent obligations to workers. With respect to severance conditions, the new Law requires 30-day written notice when firing workers, severance pay equal to one pay for each year of service (a half pay if less than 6 months), and double month’s month’s severance pay for unfair dismissal. Less than a year after the new Labor Law was enacted, China was buffeted by the global economic crisis, which affected the Chinese economy mainly through a large negative shock to the global demand for exports. Figure 1 plots data on quarterly export value China’s calculated by the authors using data from Customs Service for the period covered by China’s
employment in exporting firms exposed to adverse export demand shocks was less sensitive to enforcement of labor regulations. The rest of the paper is organized as follows. Section 2 provides background information on the Law’s provisions and its enforcement, as well as the impact of the global economic crisis on employment in China. Section 3 provides a theoretical framework for assessing the impact of the new Law on employment, Section 4 introduces the data, Section 5 describes the methodology, Section 6 presents the empirical results, and Section 7 concludes. 2. An Eventful 2008: Labor Law Implementation and Global Economic Crisis As noted earlier, China’s 2008 Labor Contract Law, which took effect on January 1, 2008, included provisions that were highly protective of workers’ interests. Two important aspects of the new Law were new regulations on the nature of contracts that employers were obligated to provide workers and the severance conditions for firing workers. Under the new Law, after a worker completes two fixed-term contracts, or ten years of employment, employment contracts must be made open-ended, or permanent. The probationary period for new contracts is limited to one to three months depending on the contract length. New regulations were passed to prevent the use of temporary work agencies, or labor service companies, to circumvent obligations to workers. With respect to severance conditions, the new Law requires 30-day written notice when firing workers, severance pay equal to one month’s pay for each year of service (a half month’s pay if less than 6 months), and double severance pay for unfair dismissal. Less than a year after the new Labor Law was enacted, China was buffeted by the global economic crisis, which affected the Chinese economy mainly through a large negative shock to the global demand for China’s exports. Figure 1 plots data on quarterly export value calculated by the authors using data from China’s Customs Service for the period covered by