Examining the effect of state ownership on the relationship between labor protection and labor investment efficiency

Objective: The effect of labor protection on labor investment efficiency is closely related to enterprises’ labor intensity. High labor intensity means that the proportion of labor costs to the total costs of an enterprise is large. In a labor-intensive enterprise, the effects of labor protection are greater than in enterprises with low labor intensity. The increase in adjustment costs caused by strengthening labor protection has a greater impact on the adjustment of human capital investment. Labor protection may induce positive and negative effects on labor investment efficiency. On the one hand, protection will encourage employees to work actively and invest in specialized human capital to improve enterprise productivity. At the same time, the resultant increased labor costs make it difficult for enterprises to lay off employees. Therefore, in the long run, they choose to upgrade the structure of human capital cautiously and employ more competitive workers. Higher firing costs could also incentivize firms to increase their investments in R&D and human capital. On the other hand, high dismissal costs make it difficult for enterprises to dismiss unqualified employees. This leads to redundant personnel, increased burdens for enterprises, reduced business flexibility, and reduced labor investment efficiency. Given the multiple mechanisms through which labor protection can influence labor investment efficiency, the relationship between the two is unclear. More state-owned enterprises hire more employees with a Bachelor’s degree or below, while smaller state-owned enterprises increase the number of employees with a Bachelor’s degree or above. Smaller state-owned enterprises are therefore more flexible and effective when upgrading their human capital structures. Therefore, the main objective of this study is to investigate the relationship between labor protection and labor investment efficiency with the moderating role of state ownership of listed companies in Tehran Stock Exchange.

Methods: The sample consists of 141 firms listed in Tehran Stock Exchange in the period from 2017 to 2021. In this study, the data were extracted from the Rahavard Novin 3 software and then classified by Excel software, and after calculating the variables, finally, through Eviews10 software, the multivariable regression model and panel data was used to test the hypotheses.

Results: The hypotheses of this research are presented as follows:

Hypothesis 1: There is a significant relationship between labor protection and labor investment efficiency.

Hypothesis 2: State ownership leads to a more prominent relationship between labor protection and labor investment efficiency. Tables 1, 2 and 3 show the findings of the test of research hypotheses. It is noteworthy that the remainder of Pinnuck and Lillis (2007) models are used to measure the labor investment efficiency. The longer the model remains, the greater the labor investment inefficiency. Therefore, The results showed that there is significant negative relationship between labor protection and labor investment efficiency in 95% confidence level. Indeed, improving labor protection reduces the labor investment efficiency. in other words, Labor protection increases the intensity of the workforce or the number of employees and leads to over-employment, which in turn reduces the labor investment efficiency. The results of the first hypothesis of the research are consistent with the results of the research of Guo et al. (2021). However, there was no evidence that the relationship between labor protection and labor investment efficiency by state ownership was more prominent. This could indicate that in listed companies of the Iranian Stock Exchange, there is no significant difference between employment flexibility in high and low state-owned companies, or at least it can be said that in the presence of labor protection, state ownership can not have a significant effect on the employment flexibility and consequently, the labor investment efficiency. The results of the second hypothesis of the research are not consistent with the results of the research of Guo et al. (2021). Guo et al. (2021), in their research, showed that improving more labor protection in high-owned state-owned companies leads to over-employment and thus reduces the labor investment efficiency.

Conclusion: The results indicated that labor protection has different economic consequences for the transformation of human capital structures in enterprises. It is noteworthy that this study helps investors to better consider investment decisions. With regard to this issue, this research offers suggestions to the Stock Exchange Organization and the government: First, the Stock Exchange Organization, as a legislative body, should pay more attention to the development of laws and regulations related to the employment of corporate employees. This will prevent the employment of inefficient people by labor protection. Also, the government can facilitate the conditions for employing efficient labor by adopting measures through strict strategies for hiring employees.