China's new Labour Contract Law: No harm to employment?

In most cases authors are permitted to post their version of the article (e.g. in Word or Tex form) to their personal website or institutional repository. Authors requiring further information regarding Elsevier's archiving and manuscript policies are encouraged to visit: a r t i c l e i n f o a b s t r a c t In January 2008, China adopted a new labour contract law. This new law represents the most significant reform to the legislation on employment relations in mainland China in more than a decade. The paper provides a theoretical framework on the inter-linkages between labour market regulation, option value and the choice and timing of employment. All in all, the paper demonstrates that the Labour Contract Law in its own right will have only small impacts upon employment in the fast-growing Chinese economy. Rather, possibly induced increasing unit labour costs may adversely affect employment. Although China has made awe-inspiring progress in economic development and growth, it is facing formidable employment challenges while moving toward a knowledge-and service-based economy and further opening up to international competition after its WTO accession. One of China's biggest challenges during the transition is how to create 100–300 million new jobs in the coming decade to absorb the millions of laid-off workers from state-owned firms, rural migrant workers and newly added labour force. Furthermore, it is quite obvious that Chinese workers and their families have lost the job security and social welfare that they enjoyed for decades before the reform era. It may not have been much, but it was a safety net. That is gone. This is one of the root causes of the kinds of protests that have developed in China: extreme social insecurity. 1 As a response to the protests, the government has announced that it wants to bring in policies aimed at restoring a more harmonious society. There is an apparent shift underway in government perception that something has to be done. China's new Labour Contract Law, which became effective on 1 January 2008, can be considered as being part of the attempt to grapple with this issue. 2 The new Labour Contract Law has stirred up a great deal of controversy among economists and has raised concerns about the sustainability of China's economic growth. 3 They view the law as the twilight of the age of cheap labour in China, undermining the 1 Over …