Labor market regulation intensity and manufacturing entrepreneurship: evidence from Chinese cities

Purpose China, as a global manufacturing powerhouse, relies on labor-intensive entrepreneurship for economic growth. To protect workers’ rights, China is tightening labor market regulations. The purpose of this study is to empirically examine how China’s tightened labor market regulations impact manufacturing entrepreneurship. Design/methodology/approach Scholars have divergent views on the effects of labor regulation on entrepreneurship. Using signaling theory and panel data from 2008 to 2020 across Chinese cities, the author applied a two-way fixed-effects model to examine the direct, indirect and varying impacts of labor regulation on manufacturing entrepreneurship. Findings The author found that frequent labor regulation promotes manufacturing entrepreneurship, with higher levels of regulation correlating with more entrepreneurship. Labor regulation also enhances AI innovation and digitalization, which both support entrepreneurship. Besides, the effects of labor regulation vary, decreasing as firm density and nonmanufacturing entrepreneurship rise. Originality/value The research extends signaling theory and clarifies the complex dynamics between labor regulation and entrepreneurship using Chinese city data.