The Political Economy of Labor Employment Decisions: Evidence from China

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Date: Oct. 2020
From: Management Science(Vol. 66, Issue 10)
Publisher: Institute for Operations Research and the Management Sciences
Document Type: Report
Length: 12,969 words
Lexile Measure: 1590L

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Abstract :

In China's transitional economy, one of the major objectives of the government is to maintain social stability. We hypothesize that, through state ownership and appointment of executives, Chinese government officials can influence firms' labor employment decisions by limiting layoffs when firms' sales decline. Consistent with this hypothesis, we find that state-owned enterprises (SOEs) have stickier labor costs than non-SOEs, and the presence of politically connected managers makes labor costs even stickier in SOEs while having little effect in non-SOEs. Such effects are stronger in regions with weak market institutions and during time periods when government officials are to be promoted. We also show that the government reciprocates SOEs' sticky labor policies with subsequent subsidies. History: Accepted by Suraj Srinivasan, accounting. Funding: Financial support was provided by the Research Grants Council, University Grants Committee, Hong Kong [Grant 14500115]; the National Natural Science Foundation of China [Grants 71372042 and 71772114]; and the Ministry of Education Project of Key Research Institute of Humanities and Social Science in University [Grant 18JJD790011]. Keywords: SOEs * political connection * labor costs * cost stickiness

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Gale Document Number: GALE|A640459342