Will the Change in Labor Supply Affect the Productivity and Profitability of Chinese Industrial Enterprises?

Zhou Mo, Gao Fangshu, Zhang Yujie

Journal of Finance and Economics Vol. 43, Issue 08, pp. 135 - 144,封三 (2017)  DOI:10.16538/j.cnki.jfe.2017.08.011

Abstract

The effect of family planning policy has gradually emerged, and the change in labor supply in our country has begun to usher in the inflection point. The change in this long-term trend is having more and more significant effect on the performance and behavior of micro-enterprises, and at the same time, this long-term effect also leads to the change in China's economic growth mode. This paper tries to incorporate labor supply into the enterprise performance analysis framework by applying ACF and DLW method, and tests the effect of labor supply at a county level where the enterprises are located on local enterprise performance. The empirical results show that the shock of the decline in the growth rate of local labor supply to the performance of micro-enterprises appeared ten years ago. Firstly, labor quality improvement brought by population control policy can actually improve total factor productivity of local enterprises, but reduces the economic profit rates. Secondly, the effects of the change in labor supply on total factor productivity of local enterprises and the economic profit rates vary with regions, and enterprises in eastern China are affected earlier by the change in labor supply. Thirdly, the empirical results verify that the change in labor supply mainly affects the productivity and profit margin differently mainly through "labor costs" as the intermediary variable. And the transmission mechanism taking labor costs as the intermediary will raise enterprise productivity and reduce economic profit rates in case of insufficient labor supply. These issues above play the extremely important role in coping with increasingly severe pressure on the transformation of labor structure and the transformation of the mode of economic growth.

Keywords

labor supply; TFP; economic profit rate