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On the Chinese Manufacturing Zombie Firms' Role in the Misallocation of Labor Resources

【Authors】
QIAO Xiaole, SONG Lin & DAI Xiaoyong
【WorkUnit】
Xi'an Jiaotong University, 710061.
【Abstract】

Based on the data of Chinese manufacturing firms, this paper identifies zombie firms, and then investigates their role in labor resources misallocation at the firm level and the industry level. Empirical results show that the prevalence of zombie firms has caused serious misallocation of labor resources: at the firm level, the zombie firms squeeze out the employment of healthy firms, and reduce the latter's labor productivity; at the industry level, the zombie firms reduce the efficiency of labor resources allocation in the same industry. Heterogeneity analysis finds that there are stronger effects of zombie firms on labor resources misallocation in the non-state-owned healthy firms and labor-intensive industries. Further analysis demonstrates that zombie firms distort the exit mechanism, which forces high-efficiency firms to exit from the market. At the same time, they hinder the optimal allocation of labor resources and affect the re-allocation of labor resources among incumbents. The conclusions of this paper contribute to a better understanding of the impact of zombie firms on labor resources misallocation and the expected benefits of resolving them, and provide some policy recommendations for tackling zombie firms in China.

JEL:D21, J24

【KeyWords】
Zombie Firms, Labor Resources Misallocation, Exit Effect, Misallocation among Incumbents