A Study on the Labor Cost of

A Study on the Labor Cost of Chinese Listed Companies – based on the perspective of labor contract law
Summary:
Labor force is a very important factor of production, especially for the modern economy which oriented by service technology, human capital has become an important asset of enterprises. However, compared to the employer, the employee as the weak side in the labor market, their interests tend to be more susceptible. In order to further standardize the labor relations of labor market in our country, clarify the rights and obligations of both parties of the labor contract, and protect employees’ legitimate rights and interests, our country enacted. We use a large sample of firms in China during 2004-2011 to test the sticky characteristic of labor cost. We also test the effect of labor protection on cost stickiness based on the implementation of Labor Contract Law. The possible contribution is mainly reflected in the following aspects: firstly, it study sticky characteristics of labor cost and the difference between state-owned enterprises and non-state-owned enterprises, which enrich the stickiness of cost related literature; secondly, with the implementation of new “Labor Contract Law” as a exogenous variables.

In view of this, we find that the labor cost of listing firms in China are sticky, and the stickiness of state-owned enterprises is higher than that of non-state-owned enterprises.For Instance we developed Hypothesis of
Labor Cost Stickiness
Labor Cost Stickiness and State
Labor Protection and Labor Cost Stickiness
Hypothesis 1
Labor Cost Stickiness
Traditional cost behavior models in the accounting literature distinguish between fixed and variable costs with respect to changes in the level of activity. Fixed costs are assumed to be independent of the level of activity whereas variable costs are assumed to change linearly and proportionately to changes in the level of activity. Underlying the traditional cost behavior model is a number of assumptions which, apart from simplifying the real world, distance the model from the way costs behave in reality.

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H1: The relative magnitude of an increase in labor costs for an increase in sales revenue is greater than the relative magnitude of a decrease in labor costs for a decrease in sales revenue.

Hypothesis 2
Labor cost Stickiness and State
Both state-owned and non-state-owned enterprises play a very important role in the market economy. However, because of the existence of government intervention, state-owned enterprises always bear policy objectives such as solving employment and maintaining policy stability. Compared to non-state-owned enterprises, the state owned enterprises pay more attention to the social and political objectives than management efficiency. Local government’s major local is promoting employment, which is also an index of performance evaluation. With facing with the pressure of employment, local government required state-owned enterprises to share part of the pressure or not allowed state-owned enterprises to release redundant labor resource. Therefore, state-owned-enterprises still bear social burden like redundancy.

H2: The labor costs stickiness of state-owned enterprises is higher than that of non-state-owned enterprises.

Hypothesis 3
3. Labor Protection and Labor Cost Stickiness
It is generally believed that all costs about ruining position is called firing cost. Firing cost can be expressed in a variety of forms, such as compensation; advance notice; terms of dismissal and cumbersome procedures. “Labor Contract Law” has improved firing costs through regulations like paying compensation and contract without a fixed term For example, “Labor Contract Law” regulated that when the employee proposes or agrees to renew a labor contract, both sides should sign a non-fixed term labor contract, in addition to the employee proposes to sign a fixed term labor contract. The former influence is direct and affirmative because the enterprises tend to hire new employees, when external demand grows faster. Therefore, the implementation of “Labor contract law” may aggravate labor cost stickiness. Because the “Labor contract law” is implemented in the whole country, it has an impact on both state-owned enterprises and non-state-owned enterprises. Based on the above analysis, we put forward the hypothesis 3:
H3: The implementation of “Labor Contract Law” aggravate labor cost stickiness of both state-owned enterprises and non-state-owned enterprises.

Methodology:
The paper treated labor protection as the proxy variable of firing costs. In above model, LP is the dummy variables, which expressed whether the implementation of “Labor contract law” or not. LP takes the value of 1 when year is greater than 2008 and 0 otherwise. Sec takes the value of 1 when sales revenue decreases between period t?2 and t?1, and 0 otherwise. EI is labor intensity and is expressed in logarithm. Growth rate takes growth opportunities of i enterprise for period t in its industry. In above model, we also control variables as following: Size, the natural logarithm of total assets at the end of the year t; Lev, total debt at the end of the year t/total assets at the end of the year t; L share, the equity ratio of the largest shareholder; Dual, takes the value of 0 when chairman and general manager are one person, and 1otherwise.Data Source and Sample Selection:
This paper selects the data of 2004-2011 all a shares of listing corporation as the initial sample. We have carried out the following elimination of samples: 1)removing the ST listed companies; 2)excluding the samples of the financial and insurance industry; 3) eliminating negative labor cost sample values, negative operating income sample values; 4) eliminating sample value of labor cost greater than operating income; 5) eliminating the missing values of main variables. Finally we got the 9367 sample values.

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