Labor Contract Law -An Economic View

TL;DR

This paper analyzes China's Labor Contract Law from an economic perspective, highlighting that the core open-ended employment contract faces issues like adverse selection and moral hazard, which undermine its effectiveness.

Contribution

It provides an economic analysis of the law's core provisions, revealing potential inefficiencies and challenges in implementation.

Findings

Open-ended contracts poorly address adverse selection.

Moral hazard problems arise from the law's provisions.

The law may not meet lawmakers' and parties' expectations.

Abstract

China's new labor law -- Labor Contract Law has been put into practice for over one year. Since its inception, debates have been whirling around the nation, if not the world. In this article, we take an economic perspective to analyze the possible impact of the core item -- open-ended employment contract, and we find that it deals poorly with adverse selection, with moral hazard problems arise, which fails to meet the expectations of law-makers and other parties.