Working Paper: NBER ID: w16498
Authors: Russell Cooper; Guan Gong; Ping Yan
Abstract: This paper studies dynamic labor demand by private and public manufacturing plants in China. It contributes along two dimensions. First, it uncovers the objectives of public enterprises and compares them to private enterprises. Second, it estimates adjustment costs of these plants and thus their (dynamic) labor demand. One of our principal findings is that public plants maximize the discounted present value of profits without a soft-budget constraint. There is strong evidence of both quadratic and linear firing costs at the plant level. Costs of adjusting hours are small and lower for private compared to public plants. The private plants operate with considerably lower quadratic adjustment costs. The higher quadratic adjustment costs of the public plants may reflect their internalization of social costs of employment adjustment. Domestic private plants and collective plants have about the same discount factor, much lower than state controlled plants.
Keywords: Labor Demand; Public Enterprises; Private Enterprises; Adjustment Costs
JEL Codes: E24; J23; L33; P23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ownership type (public vs. private) (H13) | profit maximization behavior (L21) |
| ownership type (R21) | quadratic adjustment costs (C51) |
| private plants (P31) | quadratic adjustment costs (C51) |
| ownership type (R21) | discount factors (H43) |
| profitability shocks (D89) | labor demand (J23) |