Labor force is a very important factor of production

Labor force is a very important factor of production

Labor force is a very important factor of production, especially for the modern economy which oriented by service and 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, which is harmful to improve production efficiency and maintain social stability. 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 «The People’s Republic of China Labor Contract Law» on June 29, 2007 and officially implemented since January 1, 200
Compared with the «Labor Law» enacted in 1994, «Labor Contract Law» defined the probation period without a fixed term contract and economic compensation etc. clearly. «Labor Contract Law» regulated, for example, when labor contract expires, if the employer does not renew the contract or sign of the contract with reducing conditions, it shall pay economic compensation. This is the law with tendency, which strengthened the protection of laborers, but increased the firing cost of enterprises, and reduced the enterprise employment flexibility . However, «Labor Contract Law» not only has influenced on «improve firing costs» of enterprises, but also on the labor cost stickiness?enterprises lay off employees when volume declines, it increases the difficulty to lay off employees, which may intensify enterprise labor cost stickiness.
When we are talking about the concept of cost stickiness, it is necessary to go back to traditional management accounting. In the traditional model of cost behavior that pervades the accounting literature, costs are described as fixed or variable with respect to changes in activity volume. In this model, variable costs change proportionately with changes in the activity driver , implying that the magnitude of a change in costs depends only on the extent of a change in the level of activity, not on the direction of the change. But practice and the existing research have documented strong evidence of asymmetric cost behavior. Costs are «sticky» when they respond less to decreases in activity than to increases in activity . The current research literature on «Cost Stickiness» mainly are from the following two perspectives: one is the study of sticky characteristics of SG&A, operating costs eliminating the missing values of main variables. Finally we got the 9367 sample values. According to the nature of the ultimate Table 1. Variable defined.
controller, sample was divided into two groups of state-owned enterprises and non-state-owned enterprises. The number of the state-owned enterprises sample is 5621, and the number of the non-state-owned enterprises sample is 3746. The ultimate controller data come from the Wind database, other financial data come from the CSMAR database. In addition, we delete observations if the continuous variables is above 99% percentile or below 1% percentile of its distribution. The following descriptive statistics and empirical results are based on the results of the data processing. In this paper, stata12.0 software is used for data processing and regression analysis.
Empirical Results.
The paper discusses descriptive statistics of sample data. Labor costs increased year by year, from 115.77 million in 2004 to 611.91 million in 2011. The proportion of labor costs accounting for sales revenue is from 8.4% in 2004 to 10.09% in 2011. The difference between average growth rate of labor costs and sales revenue growth rate is little. Labor costs are rising fast, and it is likely to be sticky..

Conclusions and Limitations

In recent years, Chinese companies face with rising labor cost pressure and the risk of labor shortage, and implementation of «Labor Contract Law». These provide a good opportunity for researching the labor costs stickiness characteristics of domestic enterprises. This paper analyzes the labor cost stickiness characteristics and the influence of the «labor contract law» with a large sample of firms in China during 2004-2011. The main conclusions of this paper are as follows: firstly, the labor cost of listing firms in China is sticky; secondly, the stickiness of state-owned enterprises is higher than that of non-state-owned enterprises; finally, implementation of «labor contract law» increased labor cost stickiness of both state-owned enterprises and non-state-owned enterprises. These conclusions guide the direction of cost management. State-owned enterprises should further accelerate the pace of market-oriented reform, weaken the influence of the government intervention, adjust human resource in accordance with the rules of market economy, thereby reducing the labor cost stickiness. Furthermore, the conclusion also provides evidence for the economic consequences after the implementation of the «Labor contract law».


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