Research On The Influence Of Labor Tax On Labor Demand In China

The employment problem has attracted widespread attention. In the market economy, the economic growth and employment problem is the focus of attention of experts and scholars in the world. Although in recent years, China’s rapid economic development, the employment situation has not been alleviated well. There are several reasons for the severe employment situation. In the practice of economic development in the world, it is not realistic to solve the employment problem completely rely on the market mechanism. The government has the duty to improve the labor market, increase the labor demand and solve the employment problem. One of the means of finance is the implementation of macroeconomic regulation and control is the most important, give full play to the role of fiscal policy has more important theoretical and practical significance in a positive role in promoting employment. As the government’s macro regulation and control, the tax policy is undoubtedly the most important one of the financial means.On the basis of combing the western scholars on the impact of labor income tax on the labor market, combined with the characteristics of Chinese labor market system and the characteristics of the tax system, the paper analyzes the impact of Chinese labor tax on the labor demand in the labor market.In view of the micro level of data is not easy to obtain, this paper is from the national time series data and provincial panel data to the empirical analysis, from a macro perspective on the impact of Chinese labor tax on labor demand.The impact of labor taxation on labor market outcomes has been subject of numerous discussions in recent years. Namely, by creating a wedge between total labor costs to the employer and the corresponding net take-home pay of the employee, labor taxes in not perfectly flexible labor markets reduce demand for labor(if demand for labor is not perfectly inelastic) and employment and, therefore, increase unemployment(Vodopivec 2004) and intensify exit from the labor force. In recent years, most of the OECD countries and the EU Member States started to reduce tax wedge on labor in order to alleviate unemployment problems, stimulate job creation, and improve general economic framework(OECD2006; European Commission2005). The existing literature suggests that labor taxation negatively affects labor market performance, yet the extent of its negative impact appears to be affected by the institutional features of the individual labor markets(for an overview of studies see, for example, Nickell(2003), de Haan, Sturm and, Volkerink(2003) and OECD(2006)).The domestic research on the labor demand of the tax on labor income is still relatively small, Chinese scholars study the tax policy on the employment effects, are mainly studied from theory, lack of empirical analysis. The main research center of gravity is also placed in the labor supply, from the perspective of labor supply to analyze the impact of tax policy on employment. However, the income effect of labor taxation in our country is more than that of the substitution effect. Based on previous studies, combined with the actual situation in China and the characteristics of the tax system, we can draw the conclusion by the empirical analysis: Chinese labor tax and labor demand have a positive correlation. The empirical analysis based on the national time series data shows that the positive effect of labor tax effective tax rate on labor demand is significant at 1% level, and the elastic value is 0.0656. Based on the provincial panel data, the generalized least squares(FGLS) analysis shows that EART has a positive correlation with labor demand, and the significance level is 5%, and the elasticity is 0.0656, which is higher than that of the whole country.