China should allow companies to fire workers more easily. This will help improve economic efficiency and create new jobs for people laid off from state-run enterprises that are cutting cost by downsizing their work force, says CEO Evan Guo of Zhaopin.com, one of China’s biggest job websites.
Guo insists that lack of labour mobility and skill mismatches are big problems for the labour market. Chinese authorities want to avoid mass layoffs to reduce the risk of social unrest. In a Bloomberg report, Guo says that overprotecting workers from getting laid off keeps people in the wrong jobs and makes the labour market less dynamic just when it needs to be more fluid amid a broader economic rebalancing.
In China, anyone who gets fired is legally entitled to one month’s pay for each year of service, up to a maximum of 12 years. In the event of cutting more than 20 jobs due to economic conditions, companies must first get approval from local government officials. According to Guo, companies cut pay or hours partly to force workers to resign because dismissing them can be very expensive and difficult. In his opinion, this adds to the increasingly acute labour-market mismatch.
Further reading on Bloomberg.com