Can Formal Labor Contracts Improve Employee Job Satisfaction

Abstract

Before the reform and opening up, most of the employees in the employing units were “permanent workers”, and the vast majority were lifelong employees. With the development of market economy, the lifelong employment system can no longer stimulate the enthusiasm of employees, and China’s labor market began to change. The basic direction of China’s labor market reform is to introduce the market mechanism and standardize the labor contract system to enhance the flexibility and security of labor market. In order to improve the signing rate of labor contracts and protect the legitimate rights and interests of workers, the Chinese government promulgated and implemented the Labor Contract Law in 2008, which can promote the establishment of harmonious and stable labor relations.Based on the CFPS2016 micro data, this paper explores the impact of signing formal labor contracts on improving employee job satisfaction. Empirical research shows that, on average, signing formal labor contracts has a significant role in promoting employee job satisfaction. For employees aged 16-40, at the “relatively satisfactory” level, the probability of job satisfaction of employees who signed formal labor contracts is 3.55% higher than that of employees without formal labor contracts. In order to ensure the preciseness of the research conclusions and reduce the estimation errors, this paper designs three aspects: （1）Robustness test. In order to exclude the bias caused by personality factors, this paper uses life satisfaction and marriage satisfaction to do further robustness test.（2）Quasi-natural experiment design. Based on the differences of job satisfaction and labor contract status between husband and wife, this paper constructs a quasi-natural experiment scene. If there are differences between the two sides in whether to sign a formal contract, it can be expected that there should be differences in their job satisfaction.（3）Estimation of instrumental variables. This paper uses the household registration system as a tool variable of formal contracts to verify the causal effect of formal contracts on job satisfaction.Therefore, the government needs to strengthen the implementation of the Labor Contract Law and improve the probability of workers having labor contracts. For employers, it is not enough to improve employee job satisfaction only by signing labor contracts, but also need to match salary and welfare, career development channels, etc. to make employees’ work long-term and stable.This paper tries to make the following contributions: （1）The existing research mainly focuses on the external factors such as the social security of workers, but rarely involves the internal psychological changes of employees, such as subjective well-being and employee job satisfaction. This paper studies the above issues.（2）Considering the institutional differences of labor market at home and abroad, foreign studies rarely explore the signing of formal contracts, but mainly study the impact of different contract types on workers. Combined with China’s labor market, this paper explores the above cross fields.