regulations. Given important role in global trade, the impact of the new law on labor China’s costs and employment in China has direct implications for structural adjustment policies in China as well as the competitive position of exporters in China and in other countries. Economists have attributed persistently higher unemployment in Europe compared to the United States to stronger labor market institutions and a weaker role of markets (see, for example, Nickell, 1997). However, the empirical robustness of such a relationship in country evidence has been questioned (Baker et al., 2005), and Freeman (2007) points out that the world has a great diversity of labor market institutions that can influence economic outcomes in both positive and negative ways. Stronger labor market institutions can carry important benefits for firm performance by increasing communication of information within firms, improving resolution of worker grievances and reducing turnover costs, and even strengthen market outcomes when markets are not functioning well. Even if there are negative impacts of protective labor regulations on employment, these must be weighed against the positive impacts on the welfare of employees who enjoy greater security. The majority of previous studies on the employment impact of labor regulations in developing countries find a negative (positive) relationship between inflexibility of labor regulations and employment (unemployment). Most of these studies analyze regional or national aggregate employment data (Besley and Burgess, 2004; Ahsan and Pages, 2009; Feldmann, 2009; Djankov and Ramalho, 2009; Kaplan, 2009). Only a few analyze firm-level data. Almeido and Carneiro (2005) find that stricter enforcement (as measured by higher fines) has no effect on employment, but leads to increases in informal employment in Brazil. Amin (2007) finds a negative effect of stricter regulation (mean perception by state) on employment in Indian retail outlets. After aggregating firm data to the industry level in India and Zimbabwe, Fallon and Lucas (1993) find a negative effect on employment of new legislation to increase job security. Theirs is the only study to use panel data.
regulations. Given China’s important role in global trade, the impact of the new law on labor costs and employment in China has direct implications for structural adjustment policies in China as well as the competitive position of exporters in China and in other countries. Economists have attributed persistently higher unemployment in Europe compared to the United States to stronger labor market institutions and a weaker role of markets (see, for example, Nickell, 1997). However, the empirical robustness of such a relationship in evidence has been questioned (Baker et al., 2005), and Freeman (2007) points out that the world has a great diversity of labor market institutions that can influence economic outcomes in both positive and negative ways. Stronger labor market institutions can carry important benefits for firm performance by increasing communication of information within firms, improving resolution of worker grievances and reducing turnover costs, and even strengthen market outcomes when markets are not functioning well. Even if there are negative impacts of protective labor regulations on employment, these must be weighed against the positive impacts on the welfare of employees who enjoy greater security. The majority of previous studies on the employment impact of labor regulations in developing countries find a negative (positive) relationship between inflexibility of labor regulations and employment (unemployment). Most of these studies analyze regional or national aggregate employment data (Besley and Burgess, 2004; Ahsan and Pages, 2009; Feldmann, 2009; Djankov and Ramalho, 2009; Kaplan, 2009). Only a few analyze firm-level data. Almeido and Carneiro (2005) find that stricter enforcement (as measured by higher fines) has no effect on employment, but leads to increases in informal employment in Brazil. Amin (2007) finds a negative effect of stricter regulation (mean perception by state) on employment in Indian retail outlets. After aggregating firm data to the industry level in India and Zimbabwe, Fallon and Lucas (1993) find a negative effect on employment of new legislation to increase job security. Theirs is the only study to use panel data. country
777380WP0Labor0Box377299B00PUBLIC0.docx