Russell Cooper
Guan Gong
Ping Yan

ABSTRACT
This paper studies dynamic labor demand for private and state-controlled manufacturing plants in
China. A goal of the paper is to characterize adjustment costs for these plants. As our sample includes
private and state-controlled plants, our analysis uncovers differences in both objectives and adjustment
costs across these types of plants. We find evidence of both quadratic and firing costs at the plant level.
Costs of adjusting hours are small and higher for private compared to state-controlled plants. The private
plants operate with lower quadratic adjustment costs. The higher quadratic adjustment costs of the
state-controlled plants may reflect their internalization of social costs of employment adjustment. State-controlled
plants appear to be maximizing the discounted present value of profits without a soft-budget constraint.
Private plants discount the future more than state-controlled plants.