The impact of the 2008 labor contract law on labor disputes in China.
Remington, Thomas F. ; Cui, Xiao Wen
China's Labor Contract Law came into force on January 1, 2008.
One of several important legislative acts aimed at improving the
processing of labor grievances through mediation, arbitration, and
litigation, and averting collective labor protest, it provides that all
employed persons must work under written individual employment
contracts. We evaluate the legislation's impact nationally and by
province for the years before and after the law's adoption.
Observing that the law's effect varied substantially across
provinces, we estimate the effects of the law, controlling for time,
development level, export intensity, and migrant labor share, on the
volume of disputes by province using a cross-sectional time series
design. We also examine the law's impact on the incidence of
collective disputes and the grounds for disputes. We find that the law
significantly increased the volume of labor disputes, raising questions
about the relative costliness of the government's strategy for
managing employment relations. Keywords: China, Labor Contract Law,
labor relations, labor disputes, mediation, arbitration, litigation
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China's Labor Contract Law was adopted by the Standing
Committee of the National People's Congress on June 29, 2007, and
came into force on January 1, 2008. (1) The law represented a milestone
effort by the government to shift the balance of power in employment
rights away from employers and toward employees (Becker and Elfstrom
2010; Cooney et al. 2007; Li 2008; Zhao 2009). The new law went well
beyond its predecessor, the 1994 Labor Law, in protecting workers'
rights and enhancing their ability to seek adjudication of labor
disputes. (2) Together with two companion laws also passed in 2007--a
law on the mediation and arbitration of labor disputes, and a law on
employment promotion (3)--it signaled the government's effort to
extend and enforce legal protections to workers vis-a-vis state and
private employers (Brown 2010; Cooney et al. 2007; Gallagher and Dong
2011; Josephs 2009). In this article we seek to evaluate its actual
impact on employment relations.
Enactment of the Labor Contract Law was a response to a rapid rise
in labor unrest in China in the 1990s and 2000s. A 2007 survey conducted
by the All-China Lederation of Trade Unions, the official trade union
organization, found that around 12 percent of surveyed workers had been
involved in a labor dispute (Liu 2014, 491). Collective labor disputes
(defined until 2009 as disputes involving at least three people) grew at
a rate of 11 percent per year between 2001 and 2008 (Wang 2012, 3). From
the standpoint of the Chinese government, collective labor disputes pose
a risk of turning into politically oriented protest. We argue in this
article that the Labor Contract Law represented an effort by the regime
to reduce the incidence of collective labor actions by encouraging the
orderly processing of individual contract disputes.
Broadly speaking, the growing incidence of labor disputes has been
prompted by China's rapid shift from a command to a market economy.
As contractual relations replace administrative terms of employment, the
weakness of political rights for workers to defend their collective
interests, the lack of independent judicial institutions, and the
government's drive for economic growth hindered workers'
ability to negotiate and enforce labor contracts. Competing to achieve
high economic growth rates, many local governments preferred to back
managers in disputes with workers (Cooney 2007, 677-678). Trade unions
are also normally reluctant to support worker protests. As a result,
workers often resort to spontaneous confrontational forms of collective
protests to air their grievances. Lacking local residence registration,
migrant workers are especially at a disadvantage in defending themselves
against exploitative employment practices and participate extensively in
overt collective protest to voice their demands (Kuruvilla, Lee, and
Gallagher 2011; Solinger 1999; Wang 2005). As the number of "mass
incidents" rose to alarmingly high levels in the late 1990s and
early 2000s, the Hu Jintao-Wen Jiabao leadership made easing tensions
over employment relations a high priority. Concurrently with promoting
the ideal of "harmonious development" as a central party goal,
the government initiated a new body of legislation that would strengthen
employees' legal rights (Gallagher 2014; Wang et al. 2009; Warner
and Zhu 2010; Zhao 2009). At the same time, the leadership also began
favoring policies designed to reduce China's dependence on cheap
mass-produced exports to reduce the number of poorly paid jobs held by
migrant laborers (Chen and Lunke 2008; Ho 2009; Wang et al. 2009, 489).
Accordingly, an important purpose of the Labor Contract Law was to
resolve labor grievances peacefully and on an individual basis before
they spill out into open, collective, confrontational forms (Chen 2007;
Lee and Zhang 2013), which could evolve into political opposition. This
is consistent with the observation that China's government is
strongly averse to collective action of any form (King, Pan, and Roberts
2013), thus it would prefer that if labor grievances arise, they are
adjudicated by mediation, arbitration, and litigation. The law was
probably directed not at reducing the number of grievances per se, but
at reducing the volume of collective protest. Although the earlier labor
legislation of the mid-1990s had also required individual employment
contracts, Chinese labor legislation has been poorly enforced by
employers and local governments (Cooney 2007; Halegua 2007; Ho 2009;
Josephs 2009). As Mary Gallagher (2014, 85) observes, Chinese labor law
has tended to be "aspirational." The 1994 Labor Law, for
example, had previously stipulated that employees must work under signed
written contracts. This provision was widely ignored, however,
particularly in the case of migrant workers. It is reasonable to
consider, therefore, whether the 2008 Labor Contract Law had any more
effect than its predecessor in ensuring that all workers are covered by
individual labor contracts and have widening access to the institutions
for adjudication of labor disputes.
Shortly after the law went into force, some observers attempted to
assess its effects. They found mixed results. Small-scale snowball
surveys of migrant workers in regions with high concentrations of
migrant workers--the Pearl River and Yangtze River deltas--found that
the percentage of workers with labor contracts rose modestly in the
first several months of 2008, as did the percentage of workers covered
by social insurance benefits (Becker and Elfstrom 2010; Chan 2009;
Freeman and Li 2013; Ho 2009). Similar findings were reported by
Gallagher et al. (2013) based on the China Urban Labor Survey in 2010
and in a survey of manufacturing enterprises conducted by the
People's Bank of China in fall 2009. Surveys have also found
large-scale circumvention of the law by employers. Some employers, for
example, laid off large numbers of workers just before the law took
force in January 2008, either rehiring them so as to reset the
employment clock or hiring replacements. Some employers compelled
workers to sign blank contract forms, or contracts with intentionally
inaccurate information, or contracts written in English. Some employers
closed their firms and reopened them under a new name so as to restart
the employment clock. Some relocated their firms to inland China or
Indochina. Some simply went out of business, leaving unpaid wages behind
(Becker and Elfstrom 2010; Chan 2009; Ho 2009). Scholars also noted an
immediate and sharp increase in the number of arbitrated disputes--for
example, the number of cases filed in Guangdong province tripled in May
and June 2008 (Ho 2009, 96). These may have been prompted both by
employers' efforts to evade compliance with the law and by the
greater awareness of the law's provisions on the part of workers.
Enactment of the new labor legislation coincided with two other
important developments affecting labor relations in China. One was the
long-term depletion in the supply of low-wage, low-skill labor to fill
the export-intensive manufacturing jobs on which China's growth
boom has depended (Cai and Wang 2012; China 2030). Labor markets began
tightening in 2003, loosened during the economic crisis of 2008-2009,
then resumed tightening again with economic recovery starting in 2010.
By 2011, the ratio of job vacancies to job seekers nationally had risen
above its 2007 peak to almost 1:1 (Cai and Wang 2012, 26). The
phenomenon of labor shortages began spreading from the coastal provinces
inland. The second factor was the recession of 2008, which provoked
layoffs and firm bankruptcies. Labor disputes could have increased as
workers challenged wage delays and unfair termination of jobs.
Furthermore, many employers sought to delay or circumvent compliance
with the Labor Contract Law. Local governments concerned with economic
growth and reducing unemployment were complicit in helping local
employers evade compliance with the Labor Contract Law. All these short-
and long-term factors stimulated a rise in labor militancy.
Accordingly, in this article we seek to isolate the effect of the
Labor Contract Law and its two companion laws from the sometimes
contradictory broader economic trends on labor relations. We are unable
to detail the law's effect on the incidence of individual contracts
for lack of data. However, we can examine two other trends: incidence of
reported labor disputes and use of collective contracts. Fewer reported
labor disputes and increased use of collective contracts could
indirectly point to an increased use of individual contracts. Reported
labor disputes and use of collective contracts are also proxies of
success for the Labor Contract Law. If reported labor disputes,
especially collective disputes, decrease, it indicates that the
government has succeeded in its aim of reducing potentially politically
inflammatory collective action. If use of collective contracts
increases, it could indicate the successful construction of an
institutional channel by which the government could contain the buildup
of labor discontent. Our analysis is based on national- and
provincial-level statistics on the number of labor disputes accepted for
adjudication through mediation, arbitration, and litigation, and on the
use of collective contracts. Before turning to the evidence, we review
the background and content of the legislation.
Background
Overview of Labor Relations in China
Prior to 1978, labor relations in the urban sector were managed in
the context of a planned, state socialist economy. The state was the
only employer in industry and all workers were employed by the state or
by state-authorized entities such as collective enterprises. For the
state socialist sector (and to a lesser degree for the collective
enterprises), the "social contract" made by Chinese leaders
with the Chinese urban working class after 1949 was that the state would
provide lifetime employment and comprehensive social benefits (Lii and
Perry 1997; Walder 1986). (4) The state-owned enterprises, which were
the workplace or danwei of workers, became an anchor point of everyday
life for Chinese workers, as they provided jobs, housing, and welfare
facilities. The danwei was a basic cell of society, not just a place of
employment and a small-scale welfare state. Except during extraordinary
times, such as the Cultural Revolution, the combination of secure
benefits and coercion preserved a relatively high degree of labor peace.
Doctrinally, workers were the leaders and owners of the factory under
the socialist system and were therefore officially considered to be
partners in the project of socialist construction.
In its relations with workers, the command economy was supported by
a set of bodies led by the Chinese Communisty Party (CCP). The official
trade union federation of China, the All-China Federation of Trade
Unions (ACFTU), was one of them. To this day, the main task of the ACFTU
as set by the regime is to help the state achieve its economic
development goals; representing workers in disputes with state or
private employers is secondary. Classically, in communist systems, the
trade unions' mandate is to be a "conveyor belt"
connecting the party and workers. Consistent with the communist model,
the ACFTU enjoys a monopoly in labor representation; alternative trade
unions are forbidden. In return for its monopoly status, the ACFTU must
uphold party policy. In recent years, the Chinese trade unions'
role has evolved, but it is still accurate to call the ACFTU "a
quasi-govemmental social organization with multiple functions"
(Brown 2010, 44).
However, the ACFTU has its own institutional agenda, seeking to
increase its influence while fulfilling its formal responsibility of
representing the workers in such a way as to minimize conflict between
workers and the party. A former president of the ACFTU, Ni Zhifu,
emphasized the importance of the ACFTU working independently of the
government (Pringle and Clarke 2011, 87). However, the government is
wary of the organizational capabilities of the ACFTU, as it is afraid
that trade unions might become a focal point of workers'
mobilization. Thus, organizationally, the government also recognizes an
alternative structure for representing the workers at each enterprise,
the Staff and Workers Representative Congress, for which the official
trade union organization acts as a kind of executive committee. Under
Mao, the trade unions were sometimes regarded as a rival to the Chinese
Communist Party. Trade unions twice tried to increase their measure of
independence in the 1950s and 1980s (Pringle and Clarke 2011, 86).
However, the ACFTU's first attempt resulted in its own
disintegration during the Cultural Revolution. The second attempt ended
with the suppression of the Tiananmen Square protests in 1989.
The old labor relations structure changed dramatically after 1978
as the "iron rice bowl" system of guaranteed employment and
benefits in state industrial enterprises crumbled and was replaced by a
market-oriented economy built on contractual relations between labor and
employers. The transition from a command to a market economy had varying
impacts on workers, depending to a great degree on local conditions.
The restructuring and liquidation of a large number of state-owned
enterprises in the late 1990s resulted in massive and painful
dislocations. These hit regions with high concentrations of state-owned
manufacturing enterprises (such as the industrial northeast)
particularly hard. Tens of millions of workers lost their jobs.
Estimates vary widely, but some experts claim that 50 or 60 million
workers were affected. Because the system of social protection was
severely inadequate to provide unemployment benefits to laid-off and
unemployed workers, many workers were thrown into poverty (Lee 2007;
Solinger 2007).
At the same time, a different set of challenges arose in regions
that were opened up to international trade and investment. As excess
labor in rural areas gained greater mobility following the introduction
of the household responsibility system in agriculture, rural residents
flowed into cities, particularly in southeastern coastal regions, to
take up low-skill jobs. By the 2000s, the migrant population accounted
for 57.5 percent of China's industrial workforce and 37 percent of
its service-sector employees (Lee 2007; Solinger 2007). In the garment,
textile, and construction industries, these migrant workers constituted
70-80 percent of the total workforce (Lee 2007). The large
"floating population" of rural migrants helped fuel
China's rapid economic growth by providing low-wage labor for the
export sector, but it also generated large numbers of labor grievances
as foreign and domestic employers took advantage of their social and
legal vulnerability. Most of the migrant workers were employed on an
informal basis, so they lacked proper labor contracts. Without urban
residency registration status (hukou) and without formal contracts,
migrants had to work for lower wages and lesser benefits than laid-off
state enterprise workers (Tomba 2002). A government survey in December
2003 found, for example, that 72 percent of migrant workers were owed
back wages (Brown 2010, 9).
These two macroeconomic changes created fertile conditions for
labor disputes. Many labor disputes were initiated due to mass
retrenchment and unfair compensation given to previously privileged
workers when state-owned enterprises were privatized, downsized, or
closed (Lee 2007). Migrant workers also generated a large number of
labor disputes as they suffered from poor working conditions with little
legal protection. Moreover, sociologists observed that whereas many of
the older generation of migrant workers were willing to put up with
harsh working conditions, their sons and daughters often were not (Zhang
2011).
Local governments are often caught in the crosswinds of labor
disputes. Local governments are responsible for cultivating a
growth-oriented economic environment, while at the same time they must
implement labor laws promulgated by the central government. Although
they tend to favor business interests over labor, they are eager to
resolve labor conflicts in order to maintain social stability (Lee 2007,
11). Local government officials are promoted based on their ability to
achieve GDP targets, but serious outbreaks of labor unrest tarnish
ambitious officials' performance records (Edin 2003, 40; Li and
Zhou 2005; Saich 2008). Therefore, the local government has a vested
interest in supporting enterprises that provide employment and economic
growth but also in maintaining peaceful relations with workers. It is
not unheard of, for example, for local officials to rush out to deal
with a strike or threatened strike by summoning a judge at short notice
to convene a trial at the enterprise in order to rule on--and often to
satisfy--workers' grievances (Su and He 2010). As Lee and Zhang
(2013) argue, local governments employ an array of methods, including
handing out cash to protesters and creating informal mediation
commissions, to weaken collective expressions of unrest. The
government's preference for mediation over arbitration is evident
in the fact that more disputes are handled by mediation than by
arbitration. (5)
Trade union officials are in a similarly ambiguous position.
Because the local party committee appoints leading trade union cadres,
trade unions are beholden to the local government (Pringle and Clarke
2011, 35-39). At the enterprise level, union leaders tend to depend on
management, because they depend on enterprise managers for their
salaries and benefits, and indeed often their jobs. In some cases,
particularly in private enterprises, the positions of the trade union
leaders are combined with management positions (such as human resources
manager) in the same enterprise (Pringle 2011, 167). A common pattern in
the private sector is for the spouse of a firm's owner to serve as
the head of the trade union organization (Liu and Li 2014). Therefore,
workers tend to view the trade union as a body serving management's
needs rather than workers' needs. At the same time, however, trade
unions seek to maintain or increase their institutional power. They are
intent, for example, on expanding the number of union branches in
private enterprises and participating in tripartite collective
bargaining commissions. Empirical studies find that enterprises that
have labor union organizations have higher productivity and more workers
covered by labor contracts and eligible for social insurance benefits
(although wages are not higher) (Lu, Tao, and Wang 2010). Unions are
closely allied with the party in their relations with employers, but
employers also use trade unions as channels of communication with local
party offices. This intermediate position helps explain trade
unions' reluctance to assert their independence by adopting a
confrontational posture in defending workers' rights.
By the early 2000s, the regime confronted widespread labor unrest.
The party recognized that the existing political and legal framework for
averting and resolving labor disputes was failing to prevent a growing
number of protests. Therefore, the Hu-Wen leadership initiated a set of
laws that would strengthen existing channels for resolving disputes. For
the most part, the new legislation does not introduce fundamentally new
rights for workers but it clarifies existing rights, makes it easier for
workers to defend them, and increases legal sanctions for employers who
violate them. As a means to regulate labor relations, the law is
consistent with the professed goal of a "law-governed society"
(fa zhi shehui). To be sure, the changes are incremental. The existing
rights of trade unions to represent workers in collective negotiations
resulting in collective contracts are reinforced, but the trade unions
are by no means made independent of the party-state. Given the
party's wariness of independent organizational capabilities of
trade unions, it is not surprising that the trade unions are not given
full reign over their constituents. The new legislation strongly favors
the adjudication of disputes on an individual basis, while slightly
expanding the range of opportunities for collective contracts and
collective disputes (Gallagher 2014; Liu 2014; Yao and Zhong 2013). The
new labor legislation thus tilts the formal balance in employment law
modestly toward the workers' advantage, but does not create a new
institutional framework either legally or politically.
Overview of the 2008 Labor Contract Law
The Labor Contract Law was first proposed by the government in
2005, enacted in 2007, and entered into force on January 1, 2008. Five
months after the Labor Contract Law was adopted, a companion law, the
Labor Disputes Mediation and Arbitration Law, was passed, taking effect
on May 1, 2008. This law clarified and simplified the procedures through
which workers could seek redress in disputes with employers over wages
(Brown 2010). The law emphasized mediation and arbitration over
lawsuits, but stipulated that if either party was dissatisfied with the
outcome of these procedures, it could file suit in court. Adoption of
the Labor Contract Law and its companion law on the mediation and
arbitration of disputes reflected the Hu Jintao and Wen Jiabao
leadership's intent to reduce social tensions brought about by
liberalization of China's economy. A third law, the Employment
Promotion Law, bore on employment relations less directly, but
prohibited discrimination in hiring and employment (Brown 2010; Ho
2009). Unlike the other two laws, however, the Employment Promotion Law
tended to lay out objectives and obligations without providing
institutional remedies for enforcing them. These three laws were far
from the only labor-related laws adopted in the Hu-Wen era: the decade
of their leadership saw the adoption or development of eleven major laws
or regulations on labor relations in China (Yao and Zhong 2013, 639).
The Labor Contract Law's final passage followed a long and
contentious debate among competing interests. In the thirty-day period
of public comment, the National People's Congress (NPC) received
over 191,000 comments regarding the draft Labor Contract Law. This
number far exceeded the comments received about other important and
controversial laws (Gallagher and Dong 2011, 36). Numerous policy
experts contributed comments, with some advocating greater government
protection of workers' rights, and others a greater role for market
relations. Foreign and domestic business interests weighed in as well,
generally seeking to strengthen the rights of employers vis-a-vis
workers. The American Chamber of Commerce expressed serious concern that
the law would be enforced more stringently in foreign-owned firms than
in domestic ones (Freeman and Li 2013; Gallagher et al. 2013; Pringle
2011).
The ACFTU only entered the debate over the Labor Contract Law after
the initial draft had been proposed, although it did participate
actively in the revision process (Gallagher and Dong 2011). Consistent
with their institutional demands in the past, the trade unions took the
opportunity of the public debate over the law to press for greater use
of collective contracts and tripartite bargaining institutions. Trade
unions cite the number of collective contracts signed at the enterprise,
local, or branch level as evidence of their effectiveness and value the
opportunity collective negotiations give them to represent workers
(Pringle 2011, 110). They were successful in winning broader recognition
of collective contracts and their role in enforcing them. Even here,
however, the legislation hedged against the trade unions' exclusive
representational rights by providing that other bodies, such as the
Staff and Workers Representative Congress, had the right to approve
collective contracts (Article 51). (6)
The government's clear preference for individual over
collective contracts is evident in the text of the law in several ways.
For example, the government avoids using the term collective bargaining,
preferring instead the term collective consultation (jiti xieshang) to
avoid any implication of conflict or confrontation between capital and
labor, and the negotiations are called conferences (Pringle 2011, 117).
Negotiations over collective contracts are overseen by, and final
agreements must be approved by, government labor bureaus. Collective
contracts may be signed on a territorial or industrial basis, or both,
but in practice they tend to be broad, framework documents, usually
laying out minimum standards for pay and working conditions. Workers are
often unfamiliar with their terms (Pringle 2011, 122). At most they
operate as framework agreements on the basis of which individual
contracts are drafted. This system suits employers, who are free to
differentiate wages and working conditions on an individual basis with
employees.
Moreover, under the Labor Contract Law collective contracts are not
required; the law treats the individual contract as the primary
reference point for adjudicating disputes (Article 51). If a dispute
cannot be settled within the framework of the individual contract, then
the terms of the collective contract, if one exists, are to be used to
resolve the issue. If there is no collective contract, then state law is
to be invoked. Collective contracts may not set wage and other
conditions for employment worse than those spelled out by the
government, and individual contracts may not provide for conditions
worse than those in collective contracts. If an employer violates the
terms of a collective contract, then the trade union can intervene on
behalf of the workers and, if bargaining fails, can demand arbitration
or file suit. In the case of disputes, the law allows labor unions to
express their views or demand redress (yaoqiu jiuzheng) (Article 78).
However, it is the employee who chooses whether to pursue redress
through arbitration or court; if he or she does so, then the labor union
is required to "provide help and support in accordance with the
law" (yifa jiyu zhichi he bangzhu) (Article 78). Thus, the law
restricts the trade union's role to that of support, lays primary
responsibility for seeking redress of grievances on the individual
employee, and assigns government labor departments and courts the
responsibility for adjudicating disputes. There is provision for the
pursuit of collective grievances arising from violations of collective
contracts, but only where the trade union acts (Article 56).
Thus the Labor Contract Law reinforces the trade unions'
rights to pursue collective labor contracts and their role in
representing workers at the bargaining table. However, it minimizes
pressure on employers by requiring only that collective contracts adhere
to minimum wages and working conditions. It encourages resolution of
disputes at the individual level by requiring active participation by
the individual in order for the dispute resolution process to begin.
Thus, although both individual and collective labor rights are
recognized in the law, individual rights are given greater emphasis.
Still, notwithstanding the clear limits on collective
representation of workers' interests, there is no question about
the fact that on the whole the Labor Contract Law strengthens the rights
of individual employed persons vis-a-vis employers. Above all it does
this by stiffening penalties for violations of the 1994 Labor Law's
provision that all employed workers have an employment contract. A
crucial provision of the new Labor Contract Law is that after the end of
two five-year-term contracts, an employer must renew the contract on an
open-ended, non-fixed-term basis. (The law also provides for temporary,
project-based contracts.) To be sure, the law grants employers'
rights as well. Under certain specified conditions, either party may end
a contract before its expiration (jie chu) or refuse to renew a contract
upon its expiration (zhong zhi). In addition, the law requires that
contracts include several specific types of provisions, among them
compensation, social insurance, and work conditions (Article 17). If the
contract fails to stipulate these and a dispute arises, the worker may
renegotiate the contract. The law also provides numerous grounds on
which employers may terminate a contract. The law devotes a section--new
since the 1994 law--to the use of "dispatch" labor, a system
widely used (both before and after the legislation passed) to allow
employers to avoid their obligations to pay wages on time and make the
required contributions to workers' social insurance funds on the
often-unfounded premise that the labor dispatch organization is doing
so. (7) An employer who fails to sign an employment contract within
thirty days of employment must pay double wages for the period of the
violation.
Moreover, the legislation (the Labor Contract Law and the Dispute
Mediation and Arbitration Law taken together) greatly eases the burden
for individual workers in pursuing redress of grievances. Whereas under
the old labor law, workers needed to pay legal fees for arbitration of
disputes (prorated according to the size of the award sought), the new
legislation eliminated filing fees. It also allowed partial awards,
where the facts justified an award on the basis of an initial finding
and before a final judgment; this was intended to reduce foot-dragging
by employers and to reduce the incidence of appeals of arbitration
decisions in court. Workers now have one year rather than sixty days in
which to file a grievance. Finally, although the law did not entirely
eliminate the requirement that workers pursue arbitration before seeking
adjudication in court, in a restricted set of cases, workers can take
labor grievances directly to court. (8)
As we noted above, the actual impact of the new law is hard to
measure precisely. The use of labor contracts, both individual and
collective, had been rising following the 1994 law. So had the incidence
of labor disputes, due in part to long-term trends such as the
tightening of the labor market. The global recession in 2008 and 2009
also stimulated a burst of labor protest, just as the law came into
effect. Given that Chinese legislation on social issues is often honored
more in the breach than in the observance, and that legislation
providing for employment contracts in the past had not prevented the
wide and growing use of informal labor, there is good reason to question
whether the new law has had much real effect. Nevertheless, the Hu-Wen
leadership had committed itself to easing social tensions generated by
the rapid rise in market relations and put considerable effort into
publicizing the new law. For example, soon after the law passed, the
Chinese media publicized a scandal involving forced labor of children
and handicapped workers in Shanxi and Henan provinces (China Daily
2013).
Early reports indicated that the 2008 legislation led to a sharp
rise in the number of disputes filed by workers and accepted for
mediation or adjudication (Gallagher et al. 2013, 18-20). Surveys in
2009 and 2010 found that most workers were aware of the legislation, at
least in general terms. The number of workers covered by labor contracts
increased significantly (Freeman and Li 2013, 8; Gallagher et al. 2013).
Because the Labor Contract Law provides that contracts cover not only
wages and work conditions, but social insurance protection as well, the
law increased the number of workers who were enrolled in pension and
other social insurance plans (Gallagher et al. 2013). In some cases,
this seems to have brought about a reduction in earnings as employers
cut wages in order to pay the social insurance contributions (Gallagher
et al. 2013). Moreover, as noted above, employers found other ways to
evade the obligations of the law, which in turn fueled more labor
disputes. The use of labor contracting or dispatch firms increased
significantly, although under the law, dispatch firms are obliged to
offer workers contracts. Observers noted that the flood of new cases was
largest in the Pearl River and Yangtze River delta regions, as well as
in regions that had been experiencing rapid economic growth, and in
regions with high concentrations of state-owned industrial enterprises
(Brown 2010, 170).
Hypotheses
This review of the background of the law suggests three testable
implications for the impact of the law on labor contracts and labor
disputes. First, we would expect to see a surge both in contract
coverage and disputes immediately following the law's enactment,
followed by a leveling off of both as the initial impact of the law
subsided. The new legislation spells out a number of employer
responsibilities that must be embodied in individual contracts
(including the fact of a detailed written contract and the requirement
that it provide social insurance coverage) and specifies the methods by
which workers can pursue redress of grievances. Accordingly, we expect
that these would serve as focal points for disputes filed for mediation
and arbitration. There would be an initial spike in disputes as workers
initiated claims based on past grievances and as employers resisted
complying with the legislation. However, both because the economy soon
began recovering from the economic downturn in 2008 and because both
sides would adjust to the new situation, we would expect the volume of
disputes to level off.
Second, we would expect the legislation to have a stronger effect
in stimulating individual grievances than collective ones, given the
liberalization of the procedures for filing individual cases. As we have
emphasized, the legislation is aimed at channeling disputes into
individual forms of resolution to prevent them from expanding into
collective incidents. Therefore, we predict that the surge in disputes
would be above all seen in individual rather than collective cases
accepted for resolution.
Finally, we would expect the effects of the law on both contract
coverage and disputes to vary significantly across provinces. Provinces
where exports form a larger share of economic activity are likely to
manifest more labor conflicts as international competitive pressures
push employers to cut wage costs. Likewise, provinces with a larger
share of migrant labor in the workforce would be expected to record a
higher number of disputes. This is because migrant laborers had the
lowest individual contract coverage rates before the enactment of the
new legislation. Therefore we would expect the greatest increases in
both contract coverage and the incidence of disputes to occur in those
provinces with the highest levels of exports on a per capita basis and
the highest levels of employment of migrant workers. Likewise we would
expect provinces with denser information media to record higher numbers
of disputes. This is because information would travel faster to the
extent that personal, social, and regular media networks are denser, and
would increase the scale of disputes, as well as increase copycat labor
disputes. Also, we would expect that provinces with higher levels of
output per capita are likelier to see higher levels of disputes as
rising output stimulates demands for better wages and social insurance
coverage.
Note that we expect that the incidence of individual contracts will
vary positively, not inversely, with the incidence of disputes. This is
because the two phenomena are closely related: as workers become more
aware and demanding about their rights, we would expect to see more
contracts signed and, at the same time, more effort by employers to find
ways to renege on their obligations, in turn triggering more disputes.
Unfortunately, the labor statistics only report on collective contracts,
not individual ones, so we can only explore this assumption for
collective contracts. We therefore examine national-level and
province-level trends in individual disputes, collective disputes, and
collective contracts. Our source of data is China's annual labor
statistics and trade union statistical yearbooks. (9) (See the appendix
for the descriptive statistics.)
Results
Our first two propositions about the effect of the Labor Contract
Law on the volume of individual and collective disputes are borne out by
the data. Figure 1 shows that although the number of total disputes
accepted by mediation and arbitration boards had been rising throughout
the decade, 2008 brought a sharp spike in the total, followed by a
modest decrease in 2010.
Note that Figure 1 also shows a decline in the number of collective
disputes after 2008. However, these figures are misleading, as Mingwei
Liu (2014) has pointed out. First, the government changed the definition
of collective disputes in 2009. Previously, a collective dispute was
defined as one joined by at least three workers. In 2009 the definition
was made far more restrictive, so that only disputes involving at least
ten workers could be classified as collective. That alone would reduce
the reported total. Second, labor administration departments worked to
break up collective disputes into larger numbers of individual ones,
which would inflate the number of individual disputes and reduce the
apparent number of collective disputes. Finally, the government moved
more directly to intervene in resolving collective grievances, bypassing
the mediation and arbitration procedures (Liu 2014, 491). Therefore the
sharp increase in the number of individual disputes may indicate that
more collective disputes were being handled as multiple individual ones,
as well as that there were likely more disputes of all kinds accepted
for adjudication after passage of the legislation.
[FIGURE 1 OMITTED]
As the third proposition suggests, there is wide variation in the
impact of the law across provinces. Because provinces differ so greatly
in population, we have normalized the incidence of individual disputes
by population. Figure 2 shows that the effect was modest in most
provinces and much more pronounced in a handful of rich provinces
(measured by GDP per capita). Not surprisingly, Beijing and Shanghai,
the political and financial capitals of the country, far exceed the
other provinces in per capita disputes. This is consistent with the
supposition that the density of information networks is a factor driving
labor disputes. (10) Localities with higher shares of those employees
possessing the skills and resources to lodge disputes would also likely
experience a higher number of disputes.
[FIGURE 2 OMITTED]
We can get a visual impression of the impact of the migrant labor
factor in driving labor disputes in Figure 3. It suggests that provinces
with a net positive flow of migrant labor in the 2000s experienced more
labor disputes. Although the published Chinese statistical yearbooks do
not provide data on the share of migrants in the workforce of provinces,
they do report figures on the size of the permanent population and of
the registered resident population of each province by year. We can use
the share of nonresidents in the total population as a rough proxy for
the size of the migrant labor population. Figure 3, therefore, plots the
number of individual labor disputes per 1,000 population in 2011 against
the share of the nonresident permanent population of provinces in the
same year. Those provinces with a large nonresident population, such as
Shanghai, Tianjin, and Beijing, tended to have higher rates of labor
disputes.
Figure 4 explores regional variation in collective disputes. These
are not normalized by population because collective disputes can have
varying numbers of plaintiffs. The graph indicates a great deal of
variation by year and by province. Guangdong, however, with its enormous
number of migrant workers, tops the list both in 2004 and 2008. The
graph does appear to show some decrease in the number of collective
disputes after the law's passage, but, as indicated, this may be
deceptive.
[FIGURE 3 OMITTED]
At the same time the law seems to have little impact on the use of
collective contracts. Figure 5 displays the province-by-province trends
in the total number of collective contracts signed (which can include
both enterprise- and higher-level agreements). Both series show a
generally rising trend over time, with a few provinces leading the way.
But the graph does not show a discontinuity in 2008.
The graphs provide initial confirmation that the Labor Contract Law
had an impact in stimulating more labor disputes, particularly
individual ones. We argue that this confirms that the pursuit of
individual grievances has the effect--and probably reflects the goal--of
increasing the use of individual grievance-adjudication mechanisms in
order to preempt pressures and capacities for collective protest. (11)
At the same time, we saw no evidence that the law stimulated the signing
of collective contracts, which continued generally to rise throughout
the period before and after the law. The increase in collective
contracts could be a broader trend caused by government actions other
than the passing of major labor laws. To be sure, the very short time
span covered by our data makes such a conclusion very tentative. We also
noted a distinct difference among provinces in the effect of the law. A
half dozen wealthy provinces showed marked changes, with the rest of the
territories much less dramatically affected.
[FIGURE 4 OMITTED]
[FIGURE 5 OMITTED]
We next attempt to test whether these effects are spurious and
whether the actual driving forces are not the labor legislation, but
other factors, such as economic growth, simple time trends, export
intensity, or the share of migrant labor in the province. In order to
sort out these effects, we estimate a series of cross-sectional
time-series regression models, with province-years as the units of
observation. In each model, we estimate coefficients for five
covariates: a dummy variable reflecting whether the year was 2008 or
later; year (in order to account for underlying trends over time);
province GDP per capita in current prices; total value of exports per
capita; and the share of migrants in the province's population (as
a proxy for the share of migrant labor in the workforce). We use
province fixed effects to hold constant other unobserved
province-specific effects and cluster errors on the provinces. Tables
1-5 present the findings.
The data show that the dummy variable for the new legislation had a
positive and statistically significant effect on the number of total
disputes, even after we account for the effect of GDP per capita, year
trends, migrant labor share, and export intensity. (12) The onetime
effect of the law also is positively related to the incidence of
disputes over wages. And, although Figures 1 and 4 showed a decline
nationally in the number of collective disputes, the time trend was
positively related to the number of collective labor disputes, once
other province-specific variables are held constant. None of the
variables except for GDP per capita was positively related to the
incidence of collective contracts. The results for wage-related
contracts are not clear-cut; time itself did not have an effect and the
law's effect was negative. The tables also show that the share of
migrant labor is positively related to labor disputes even when
controlling for export intensity of the region. Higher GDP per capita by
itself was not related to the incidence of individual disputes, but did
seem to lower the incidence of collective disputes.
Overall, the law prompted an increase in the number of individual
labor disputes accepted for adjudication but did not stimulate an
increase in collective disputes or collective contracts. If it was the
intent of the law's sponsors to channel disputes into
individual-level legal channels rather than allowing them to take more
large-scale collective forms, the goal appears to have been realized.
However, the effect of the law is not evenly distributed across
provinces. Richer provinces, particularly those with large inflows of
migrant labor and denser information networks, saw far more dramatic
effects on disputes than poorer inland provinces. Clearly, diversity of
social and economic conditions across the country plays a major role in
influencing the effect of the legislation.
Conclusion
Our findings are consistent with a large body of literature arguing
that the Labor Contract Law and the Labor Dispute Mediation and
Arbitration Law formed part of an effort by the leadership to improve
employment conditions for China's population by strengthening the
legal rights of individual workers vis-a-vis employers. In doing this,
the regime did not concede political autonomy to collective instruments
of labor's interests, such as trade unions, communications media,
or political parties. Nor did the regime move toward a system of
collective bargaining between organized labor and employers'
associations. Rather, it reinforced the mechanisms that had been worked
out in the 1990s through which individual workers could defend their
employment rights through mediation, arbitration, and litigation. It
broadened the set of rights workers enjoyed and eased the path for
defending them institutionally. It extended the existing framework for
collective contracts modestly and modestly enhanced the trade
unions' rights in negotiating and defending them. However, it did
nothing to change the practice of treating collective contracts as
floors below which workers' wages and benefits could not fall and
ensured that enforcement of collective contract rights remained squarely
in the hands of the government.
We do not mean to understate the law's impact. Clearly, the
publicity campaign surrounding it, coupled with the flagrant efforts by
some employers to evade it, produced a spike in disputes, particularly
in those provinces where workers were mostly likely to have grievances
and to be aware of their rights to seek redress. Our data show a
subsequent leveling off in the caseload, but not a return to the status
quo ante in the level of disputes. Time of course will tell whether the
overall level remains constant, or falls or rises. Still, if it was the
goal of the authorities to use the law to forestall more widespread,
confrontational collective grievances, the results were only partially
successful. Wildcat strikes have continued to occur, as at the Honda
plant in 2010 and Yue Yuen plant in 2014. The China Labour Bulletin
reported in January 2015 that there were three times as many strikes in
the fourth quarter of 2014 than in the same period in 2013 (Economist
2015). Workers' greater awareness of their rights to social
insurance coverage (the basis for the Yue Yuen strike) and the more
widespread use of the instruments provided them under the Labor Contract
Law suggest that workers are likely to continue to use whatever means
are available to defend their interests.
In the future, if the regime's major goal is to forestall open
labor protest by using contract negotiations and legal adjudication of
disputes, then the regime may find it less costly to negotiate labor
agreements through collective bargaining than to adjudicate millions of
individual disputes. An indication that collective agreements are
becoming more widespread is a new regulation passed by Guangdong
province in late 2014, taking effect in January 2015, that authorizes
trade unions to represent workers in negotiating enterprise-level
collective agreements ("Guangdong Provincial Regulation on
Collective Contracts for Enterprises" 2014). The 2008 labor
legislation does not expressly rule out such agreements, but provides
for them only at higher levels, such as branch or region. The
increasingly tight labor market and rising awareness on the part of
workers of their rights--stimulated in part by the 2008 labor law--make
it likely that enterprise-specific collective bargaining and collective
dispute adjudication will become more widespread.
We also substantiated the impression of many initial observers that
the law's effects varied widely depending on local conditions. As
Ronald Brown (2010, 170) noted, regions with rapid economic growth, high
incomes, and large shares of migrant labor (such as Beijing, Tianjin,
Shanghai, Zhejiang, Jiangsu, Guangdong) have higher numbers of disputes
on a per capita basis. However, his observation that regions with high
shares of state-owned enterprise employment and heavy industry
(Liaoning, Hubei, Fujian, Chongqing, and Sichuan) also are higher than
average in disputes is not borne out by the data apart from the case of
Chongqing. Note also that we do not see large numbers of disputes in
poorer regions or regions with large populations of ethnic minorities or
lower incomes.
Data limitations prevent us from addressing some related issues. Of
particular importance would be data on the actual incidence of
individual contracts. So far, these data are lacking on a
province-by-province basis. It would also be useful to know more about
the nature of disputes: How many are actually collective disputes that
have been administratively processed as individual ones? How well are
the judgments of arbitrators and judges enforced? At the individual
level, what are the factors associated with the likelihood of seeking
adjudication of a dispute? Consistent with the literature, we might
expect that younger and more educated workers are more likely to file
grievances, and that private sector firms and smaller firms are likely
to see a larger number of disputes, but only more fine-grained data
would allow us to confirm those suppositions.
Further research will also be needed to examine the changing role
of trade unions in representing the individual and collective rights of
labor. Firm-level data would allow us to identify conditions under which
the size and cohesiveness of a trade union branch are associated with a
higher level of individual contract coverage, more effective collective
contract bargaining, and more vigorous defense of individual and
collective worker rights. We can imagine two alternative patterns. In
one, a stronger labor union branch presses the employer to ensure that
all workers are covered by contracts and that contracts are
enforced--resulting in fewer labor disputes and more harmonious labor
relations. Alternatively, a stronger labor union organization might
prefer to press individual and collective disputes as a way of
demonstrating its collective power vis-avis employers. To test these
propositions we will need good measures of trade union strength (share
of workers who are members, cohesiveness of trade union preferences) and
firm-level measures of contract coverage and disputes.
Nevertheless, the findings in this article allow us to draw several
inferences. The 2008 law had an effect in stimulating a rise in
individual labor disputes accepted for adjudication. This effect varied
widely across provinces, depending on the development level, export
orientation, and share of migrant labor of the province. The data are
consistent with the idea that the law represented an effort by the
government to parcel labor grievances into individual disputes and to
keep them from assuming collective and confrontational forms. In this
the law had only modest success: the number of disputes rose, but the
number of collective labor protests has not diminished. Therefore it is
likely that the law is one step on the path toward wider use of
collective labor bargaining and dispute resolution. It is likely,
therefore, that the 2008 law will be followed by a new body of
legislation on collective labor rights.
Thomas F. Remington is Goodrich C. White Professor of Political
Science at Emory University and senior research associate, International
Center for the Study of Institutions and Development, Higher School of
Economics, Moscow, Russian Federation. He has published a number of
books and articles on the development of political institutions in
postcommunist states. His current research is a comparative study of
inequality and social policy in Russia and China.
Xiao Wen Cui is a graduate student in East Asian studies at Harvard
University. Her work focuses primarily on government-business relations
in China. Prior to coming to Harvard, she studied international politics
and economics at Peking University.
Appendix: Descriptive Statistics
The items are total number of disputes filed for adjudication
through mediation, arbitration, or litigation per province, normalized
to 1,000 population; number of collective disputes filed per province;
number of collective contracts signed per province; number of
wage-related collective contracts per province (note that figures for
total number of collective contracts concerning wages were not available
for 2001); number of disputes related to wages per province; and number
of disputes related to social insurance per province. To simplify the
presentation, we only show figures for 2001 and 2011.
Mean Median Min. Max.
Disputes accepted per .16 .08 .02 .81
1,000 population, 2001
Disputes accepted per .49 .28 .10 2.94
1,000 population, 2011
Collective disputes, 2001 321.1 174 14 2,397
Collective disputes, 2011 212.5 113 5 1,008
Wage collective contracts 29,685.7 20,834 31 103,517
above enterprise level,
2011
Disputes over wages, 2001 1,505.1 660 52 8,103
Disputes over wages, 2011 6,462.03 3,224 253 38,270
CV (a) Std. dev. N
Disputes accepted per 1.25 .19 30
1,000 population, 2001
Disputes accepted per 1.28 .63 31
1,000 population, 2011
Collective disputes, 2001 1.4 448.8 30
Collective disputes, 2011 1.02 216.4 31
Wage collective contracts .93 27,572.72 31
above enterprise level,
2011
Disputes over wages, 2001 1.4 2,115.1 30
Disputes over wages, 2011 1.41 9,082.4 31
Note: (a.) Coefficient of variation.
Notes
We wish to express appreciation to Mary Gallagher, Elizabeth Perry,
Richard Freeman, Dorothy Solinger, Mingwei Liu, and Nara Dillon for
advice on this article. Nancy Hearst of the Fung Library at Harvard
University helped identify valuable source material. Thomas Remington
wishes to thank the Davis Center at Harvard for a visiting scholar
position that enabled him to conduct research on this project.
(1.) The law's text in Chinese and English may be found at
www.lawinfochina.com/display.aspx?lib=law&id=6133&CGid=#.
(2.) During the debate over the law, some argued that the law
should provide equal protection to employers and employees, others that
the law must emphasize protection of workers. The
"single-protection" position won out even though some
concessions were made to employers' interests in the final draft
(Li 2008, 1107-1108).
(3.) The text of the dispute mediation and arbitration law may be
found at www.cietac.org/index/references/Laws/47607b5418c9657f001.cms.
The text of the employment promotion law may be found at
www.npc.gov.cn/englishnpc/Law/2009-02/20/content_1471590.htm.
(4.) Note that the old danwei system did not apply to rural
enterprises.
(5.) Zhongguo laodong wang, www.laboumet.com.cn; Laodong zheng yi
chu li tong ji shu ju (Statistical Data on Labor Disputes Handled)
www.labournet.com.cn/ldzy/ckzl/ckz12a (accessed August 6, 2014).
(6.) This permits workers' participation in bargaining over
collective contracts in those enterprises lacking a trade union
organization. We are grateful to an anonymous reviewer for pointing this
out.
(7.) Dispatch services recruit workers for an employer, who signs a
subcontract with the service. In turn, dispatch services may sign
subcontracts with other contractors who recruit laborers. It is not
uncommon for there to be multilink chains of subcontract relations
separating an employee from the final employer. Often responsibility for
ensuring that wages and social insurance contributions are paid properly
is lost (see Pun and Lu 2010).
In December 2012, the National People's Congress amended the
Labor Contract Law so as to tighten requirements for the use of dispatch
agencies to employ temporary labor. The amendments stipulated that
dispatch labor could only be hired for temporary jobs, replacement jobs,
or "auxiliary" positions and that dispatch workers must be
paid at the same rate for the same work as regular workers. It also
raised the capital requirements for a dispatch agency to register and
increased the fines for violations of the law;
www.china-briefing.com/news/2013/03/18/china-revises-labor-contract-law.html.
(8.) Unlike ordinary contracts, for which the parties may seek
adjudication through litigation, employment contracts must be dealt with
first by mediation and/or arbitration before going to court. The 2008
legislation relaxes this requirement for certain types of employment
cases (Brown 2010, 168).
(9.) Zhongguo lao dong he she hui hao zhang nan jian and Zhongguo
gong hui nian jian.
(10.) As a reviewer pointed out, the major cities also have high
shares of office workers, who also often file employment disputes.
(11.) Although collective protests increased, it is plausible that
there would have been still more in the absence of approved
institutional channels for individual disputes.
(12.) It is the case that the dummy variable representing the
impact of the law simply records whether the year was 2008 or later. As
noted above, 2008 brought economic recession as well as the law.
However, despite economic recovery, the post-2008 levels of disputes
remained significantly higher than the earlier levels, supporting our
supposition that the law had an effect independent of economic
conditions.
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Table 1 Number of Disputes Accepted, per 1,000
Population, 2001-2011
Coeffic. S.E. t p > [absolute
value of t]
LCL dummy (a) .233 ** .07 3.33 .002
Exports per capita (b) .068 * .03 1.99 .060
Year .017 .01 1.21 .234
GDP per capita -.0000 -.0000 -0.07 .946
Migrant share (c) 3.44 * 1.8 1.92 .065
Constant -33.51 28.34 -1.21 .235
Notes: [R.sup.2] = .6698; * p < .1; ** p < .01; *** p < .001; N
observations = 340; N groups = 31
(a.) LCL dummy: 1 if year is 2008 or later; otherwise 0.
(b.) Total value of exports from province per capita (USS).
(c.) Percentage of nonresident population registered in province.
Table 2 Number of Collective Disputes Accepted, 2001-2011
Coeffic. S.E. t p > [absolute
value of t]
LCL dummy 77.96 88.63 .88 .386
Exports per capita -30.59 56.54 -.54 .592
Year 53.93 ** 17.95 3.00 .005
GDP per capita -.02 ** .006 -3.13 .004
Migrant share 1,903.13 * 814.44 2.34 .026
Constant -107,369.2 35,889.65 -2.99 .006
Notes: [R.sup.2] = .0271; * p < .1; ** p < .01; *** p < .001; N
observations = 340; N groups = 31
Table 3 Total Number of Collective Contracts Signed, 2007-2011
Coeffic. S.E. t p > [absolute
value of t]
LCL dummy -354.59 2,061.15 -.17 .865
Exports per capita 134.05 2,148.79 .06 .951
Year 156.57 1,497.71 .10 .917
GDP per capita .544 * .316 1.72 .095
Migrant share -52,541.21 32,737.87 -1.6 .119
Constant -302,393.6 2,999,770 -.10 .92
Notes: [R.sup.2] = .203; * p < .1; ** p < .01; *** p < .001; N
observations = 155; N groups = 31
Table 4 Wage Collective Contracts Signed Above Enterprise Level,
2005-2011
Coeffic. S.E. t p > [absolute
value of t]
LCL dummy -2,532.97 * 1,405.4 -1.80 .082
Exports per capita 3,385.82 3,415.56 .99 .329
Year -1,030.05 1,263.28 -.82 .421
GDP per capita 1.13 ** .34 3.31 .002
Migrant share -111,454.2 * 42,194.98 -2.64 .013
Constant 2,053,846 2,529,139 .81 .423
Notes: [R.sup.2] = .29; * p < .1; ** p < .01; *** p < .001; N
observations = 217; N groups = 31
Table 5 Disputes Concerning Wages, 2001-2011
Coeffic. S.E. t p > [absolute
value of t]
LCL dummy 3,405.71 * 1,272.96 2.68 .012
Exports per capita 2,175.66 1,420.93 1.53 .136
Year 126.86 185.81 .68 .5
GDP per capita -.017 .10 -.17 .868
Migrant share 39,035.92 * 22,496.82 1.74 .093
Constant -253,320 371,648.5 -.68 .5
Notes: [R.sup.2] = .48; * p < .1; ** p < .01; *** p < .001; N
observations = 339; N groups = 31
