New Labor Contract Law And Corporate Employment Decisions, The Staff Of Human Capital Investment

The "Labor contract law" has been enacted since Jan 1st 2008. This law to some extent corrects some setbacks of the "labor law" which was put into effect in 1995. After and before the enactment of the "Labor contract law", the argue and discussion about some terms of this law, especially the "open-ended work contracts" has never been stopped.This article focuses on the firing cost and hiring cost, builds theoretical model to research the enactment of the Labor contract law's affection on enterprise's hiring behavior and workers' human capital investment behavior. The article comes to a conclusion that the enactment of the "Labor contract law'" has to a large degree increase the enterprise's hiring cost and firing cost, so the enterprise becomes more cautious about its hiring and firing decision, which makes the work relationship between workers and enterprise more stable and reduce the circling fluctuation of labor market. However, this effect only benefits the "insider" in the larbor market by makes the outsider's out of job status more stable. Further more, the increasing of the hiring cost reduces the probability of the worker to be fired, so it reduces the worker's motivation to make human capital investment. To sum up, the enactment of the Labor contract law's setback outweighs its benefit.Compared to the researches before, this article has some innovations followed:First, the researches before focuses on the increasing of firing cost, but this article also look into the increasing of the hiring cost after the enactment of the "Labor contract law". The article finds that the hiring cost has same effect on enterprise's hiring and firing decision as firing cost.Second, this article brings firing cost into Kahn and Heberman(1988)'s classical model and comes to a conclusion that the increasing the firing cost reduces the worker's motivation to make human capital investment.