Labor protection and the efficiency of human capital investment

This paper investigates the impact of labor protection on the labor investment efficiency of labor-intensive enterprises. Based on data from A-share listed companies in China, we introduce difference-in-differences design to identify the impact of The Labor Contract Law on enterprises' employment investment and business decision-making. We find that improving labor protection reduces the efficiency of labor investment in labor-intensive enterprises. Improvements in labor protection also cause over-employment, especially in state-owned enterprises. Further tests suggest that labor protection affects the expansion of employees in different ways in state-owned and private enterprises. In private enterprises, labor protection promotes the adjustment and upgrading of human capital structures. We also find that labor protection can improve labor costs for labor-intensive enterprises, but that it has a negative effect on enterprise innovation. This paper provides a clear policy reference for understanding the structural distortion of human capital in the transformation and upgrading of Chinese enterprises. (C) 2020 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.