The Impact of China's Millennium Labor Restructuring Program on Firm Performance and Employee Earnings

34 Pages Posted: 10 Oct 2007

See all articles by Xiao-Yuan Dong

Xiao-Yuan Dong

University of Winnipeg

Lixin Colin Xu

Cheung Kong Graduate School of Business

Date Written: October 2007

Abstract

Around the turn of the century, China experienced perhaps the largest labor restructuring program in the world. This paper uses a new data set of Chinese industrial enterprises to examine what leads to downsizing, and tries to understand the effects of labor downsizing on firms' technical efficiency, financial performance, and employee wages. We find that downsizing is more prevalent in SOEs, and is more likely when enterprises are older, larger, and have higher excess capacity. For both SOEs and private firms, downsizing is more likely when the prices of their products drop, but private firms respond more dramatically. Moreover, downsizing has serious short-term costs in terms of total factor productivity. For mild downsizing, private firms suffer more deterioration in productivity. The distribution of surplus after downsizing is more favorable to labor in SOEs. For severe downsizing, SOEs and private firms both exhibit lower TFP growth with similar magnitudes. Our findings imply that private firms emphasize profit goals while SOEs place a greater weight on labor protection.

Keywords: Downsizing, restructuring, ownership, firm performance, employee earning, China

JEL Classification: J2, J3, J4, L2, L3, O5, P5

Suggested Citation

Dong, Xiao-Yuan and Xu, Lixin Colin, The Impact of China's Millennium Labor Restructuring Program on Firm Performance and Employee Earnings (October 2007). Available at SSRN: https://ssrn.com/abstract=1020271 or http://dx.doi.org/10.2139/ssrn.1020271

Xiao-Yuan Dong

University of Winnipeg ( email )

Winnipeg, Manitoba R3B 2E9
Canada

Lixin Colin Xu

Cheung Kong Graduate School of Business ( email )

1017, Oriental Plaza 1
No.1 Dong Chang'an Street
Beijing
China

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