R&D responses to labor cost shock in China: does firm size matter?

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


This study examines how a labor cost shock affects firms’ research and development (R&D) activity, focusing on the heterogeneous effect across firm size. Using the difference-in-differences approach, we investigate the R&D effect of Labor Contract Law (LCL) on firms in China. Empirical evidence reveals that, when considering the law binding issue, strict enforcement of the LCL has a negative treatment effect on treated firms’ R&D expenditure, which was reduced by 3.03%–6.75% on average, but it did not affect their likelihood of engaging in R&D. Crucially, the LCL’s R&D effect varies greatly by firm size. There is a positive treatment effect for large and medium-sized firms, whereas small treated firms reduce R&D in response to the labor cost shock. These heterogeneous effects apply to R&D propensity across firm size. The potential mechanisms for mitigating the LCL’s cost impact are discussed. Robustness checks reaffirm the above findings.

Original languageEnglish
Pages (from-to)1773-1793
Number of pages21
JournalSmall Business Economics
Issue number4
StatePublished - Dec 2023


  • High-tech
  • Innovation
  • Labor contract law
  • Labor cost
  • Ownership
  • R&D


Dive into the research topics of 'R&D responses to labor cost shock in China: does firm size matter?'. Together they form a unique fingerprint.

Cite this