The Effects Of "Labor Contract Law" On Cost And Stickiness Of Enterprises

Existing research about the "Labor Contract Law" concentrates on its direct impacts on hiring and firing costs of enterprises, while the research about its effects on the adjustment cost of employment (including the amount of labor and per capita salary) is less. In response to this reality, this paper examines the impacts of the "Labor Contract Law" from the perspective of cost stickiness. Cost stickiness implies that costs increase more when activity rises than costs decrease when activity falls by an equivalent amount. The cost exhibits asymmetric changes when the activity changes. The research about cost stickiness contributes to a deeper understanding of the impact of the Act on the actual operation of the business and its adjustment strategy. This paper examines how the implementation of "Labor Contract Law" affected the cost and expense stickiness of nearly 150,000 non-listed companies in 2006-2009. Based on this, the total cost stickiness is divided into output stickiness and the average cost stickiness. The results show that, (1) Before the introduction of the law, the total cost stickiness of companies was not always obvious. The introduction of the law led to the appearance of total cost stickiness; the study of the total expense stickiness has reached a similar conclusion. (2) The law not only directly increased the cost of the hiring and firing, but also increased the labor adjustment cost thus aggravated the total cost and expense stickiness; Firstly, the law may increase the cost of adjusting the size of the employment, so is the output stickiness; Secondly, it may increase the cost of reducing the salaries so is the average cost stickiness.