Department of
Economic Studies,
University of Dundee,
Dundee.
DD1 4HN
Dundee Discussion Papers
in Economics
CHINA´S NEW LABOUR CONTRACT
LAW: NO HARM TO EMPLOYMENT?
Yu-Fu Chen
&
Michael Funke
Working Paper
No. 220
October 2008
ISSN:1473-236X
CHINA´S NEW LABOUR CONTRACT LAW:
NO HARM TO EMPLOYMENT?
Yu-Fu Chen
Economic Studies
School of Social Sciences
University of Dundee
Dundee DD1 4HN
United Kingdom
Email: y.f.chen@dundee.ac.uk
Michael Funke
Department of Economics
Hamburg University
Von-Melle-Park 5
20146 Hamburg
GERMANY
Email: funke@econ.uni-hamburg.de
Dundee & Hamburg, August 2008
Abstract
In January 2008, China imposed a new labour contract law. This new law is the most significant
reform to the law of 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 it´s own right will have only small impacts upon employment in the fast-growing
Chinese economy. On the contrary, induced increasing unit labour costs represent the real issue and
may reduce employment.
Keywords: China, Labour Contract Law, Real Options, Employment
JEL-Classification: C61, D81, D92, J23
1. Introduction
Although China has made awe-inspiring progress in economic development and growth, it is facing
formidable employment challenges while transforming toward a knowledge and service-based
economy and further opening up to international competition after its WTO accession. One of the
biggest challen