Impact of regulating political connections on employee welfare attitude: Evidence from China

Abstract

We investigated how regulating political connections affects firms’ employee welfare attitudes using a quasi-natural experiment in China. We find that the depoliticization regulation negatively impacts employee welfare attitudes toward firm staff benefits, but positively impact welfare attitudes toward firm humanistic care. Furthermore, we find that the SOEs’ employee welfare attitude regarding staff benefits is profoundly reduced; the effect of regulating political connections on welfare attitudes toward firms’ humanistic care is particularly effective for non-SOEs. Additionally, the impact of regulating political connections on employees’ welfare attitudes is particularly profound for firms in the manufacturing sector. Moreover, our empirical results indicate that the impact of regulating political connections on employee welfare attitudes is significant, particularly for firms experiencing financial constraints. Firms located in neither left- nor right-leaning regions seem to form the most affected group. Finally, the weakening of firms’ political connections has resulted in a decline of corporate wage differentials.