It's harder to fire someone in China than in California (with caveats)

Until you look at the bottom half of each labor market, where dismissal is effectively at-will everywhere. For those with lawyers, it's a different story.

Photo by Glsun Mall on Unsplash

Tencent’s then-president Liu Chiping told markets the company would “emphasize optimization” of costs (like personnel) in 2022. Chinese tech firms put hundreds of thousands of formal-sector white-collar workers out of work over the following three years. The Labour Contract Law was in force throughout (even with its grounds requirement and an active arbitration system). None of it stopped Tencent from performing layoffs.

“Socialist” California’s big tech firms cut entry-level hiring by more than 50% from 2019 to 2025 and ran successive layoff waves under a “notionally” opposite regime. California has at-will employment with no statutory severance and no just-cause standard. Google and Meta paid roughly 4 to 6 months of pay plus stock acceleration for the initial waves. Later waves of layoffs were not as generous to those unlucky souls.

You want to ask “Where were employers not firing anyone?” In Japan, the 2025 active job-openings-to-applicants ratio was 1.22 overall and 1.50 in manufacturing with unemployment held at 2.5% (some people don’t like that for some reason). Firms that wanted to reduce headcount did not invoke the four-requirement test for redundancy dismissal. They ran kibō-taishoku programmes (voluntary retirement at premium prices with 12 to 36 months of base pay on top of statutory retirement).

Tokyo Shoko Research found listed companies announced programmes covering 19,009 employees in 2024 (tripled from 2023).

What matters is whether local demand exceeds supply. When it does, employers cannot easily fire because they cannot easily replace (and the threat of layoffs loses its edge if people can find another job). When demand collapses you see that statutory protection becomes more like statutory guidelines (and, like all guidelines, employers find ways around it or just ignore them).

Hold up a moment? Earlier I imply that it is harder to fire someone in China than in California? Yes, with a heaping helping of caveats! Chinese employers face the Labour Contract Law‘s grounds requirement. This isn’t paper-only law the government quietly declines to enforce. The SPC’s August 2025 interpretation closed a common evasion route, and recent court rulings have invalidated performance-improvement-plan dismissals. That said, Chinese employers work around the formal regime through “optimisation” and pay N+1 as part of their “release”. SMEs in China often try to ignore the law and risk lawsuits.

You see incidents like the Jiangsu Suchun Liquor reorganization (SPC Guiding Case No. 164). A Chinese court, citing the local Party committee’s need to preserve jobs and prevent “mass incidents,” let an outside investor restart a bankrupt distillery’s production before formally taking it over. Essentially using bankruptcy law to keep workers employed.

Over the Pacific pond, Californian employers don’t really have any such requirements. Larger firms might pay out severance to reduce the likelihood of a wrongful-termination litigation. As a job market gets worse, severance packages often drop despite the threat of litigation.

You can guess whether the bottom half of each labour market has any formal protections. Despite the legal risks, a lot of Chinese SMEs ignore the Labour Contract Law, and 200 to 240 million flexible workers sit outside it entirely. Japanese non-regular workers (36.2% of the workforce) face yatoi-dome (the non-renewal of fixed-term contracts) as a normal exit mechanism. California employers fire at will and pay nothing in most cases.

You can guess what happens to young workers. China and California are both in genuine new-graduate hiring crises driven by different mechanisms. Japan’s labour market is tight. The protection that matters most for a 22-year-old graduate in 2026 is not Article 39 of the LCL or Tameny v. Atlantic Richfield. It is whether anyone is hiring.

Labour demand is the bedrock of protection

NBS reported a 16-24 urban unemployment rate (excluding students) of 18.9% in August 2025. It’s the highest since the methodology was revised in December 2023. Per China’s Ministry of Education data reported by The Economic Observer, the 2025 graduating class numbered 12.22 million and four consecutive cohorts have exceeded 10 million. A Zhilian Zhaopin survey put the 2024 graduate employment rate at 55.5% (down from 57.6% the year before). Zhang Dandan at Peking University (in a July 2023 Caixin article since removed from the original site) decomposed the cohort to argue the upper-bound rate could be as high as 46.5% if “lying flat” and “full-time children” populations are included.

California’s situation is hidden by the headline numbers. The state’s overall 5.5% unemployment rate (December 2025, per EDD) does not reflect the new-graduate cohort, which faces a different market. The Federal Reserve Bank of New York’s recent-graduate dashboard shows unemployment for ages 22 to 27 at 5.3% in Q2 2025, 5.7% in Q1 2026, which isn’t too bad. Then you see underemployment at 41.5%. For ages 20 to 24 with a bachelor’s or higher, BLS data put unemployment at 9.5% in September 2025. Recent graduates now run higher unemployment than the general workforce, reversing a thirty-year pattern. Oxford Economics attributes 85% of the rise in US unemployment since mid-2023 to new labour-market entrants. Handshake job postings for new grads fell 15 to 16% year-over-year and applications per posting rose 26 to 30%. Cengage Group found only 30% of 2025 graduates secured full-time jobs in their field.

Back to Japan, new graduates face the opposite condition. Recruit Career Future Research Institute’s Class of 2026 process survey found 39.3% of the cohort already held at least one informal offer by February 2025 (thirteen months before graduation). By December 1, 2025, the figure was 94.8%. JILPT’s official report put the Class of 2025 naitei rate at 92.6% (the highest since records began in 1999).

A new graduate in Japan is more than ten times as likely to have a job offer at graduation as a Chinese counterpart and substantially more likely than a Californian. Demographics, sectoral composition, and AI exposure explain almost all of it.

Dismissal regimes converge in practice

China’s Labour Contract Law permits unilateral termination only on “justified” grounds (Articles 39, 40, 41). Lawful no-fault terminations require N months of severance (one month per year of service). Unlawful termination requires 2x N (2N). Workers must be converted into open-ended contracts after ten years or two consecutive fixed-term renewals.

Japan’s Labour Contract Act Article 16 voids any dismissal “lacking objectively reasonable grounds and not socially acceptable.” Japan’s seiri-kaiko yon-yōken (four requirements) makes forced layoffs nearly unwinnable in court. The doctrine is set out in the Nihon no Jinjibu legal encyclopedia.

California (famously antibusiness) is fully at-will. The Labour Code §2922 reads, “An employment, having no specified term, may be terminated at the will of either party on notice to the other.” California’s only real exceptions are anti-discrimination protections.

How employers actually dismiss

China’s standard for white-collar dismissal is youhua (优化, “optimisation”). It’s a neat little euphemism for converting an unlawful termination into a mutually agreed departure under Article 36. The playbook (corroborated by Gank Interview’s January 2026 walkthrough) runs as follows. The employer issues a performance improvement plan with targets the employee is expected to fail. Once the employee fails, the company uses documented failure as Article 40(2) “inability to perform.” Most employees accept N+1 rather than pursue 2N through arbitration.

How can Japan get rid of headcount when the executives feel like it? Well, they have their own system, called kibō-taishoku (voluntary retirement). It’s still a lot more consensual than the Chinese and California examples. By mid-November 2025, Tokyo Shoko Research recorded 41 companies covering 11,045 employees. The Nikkei‘s analysiscalled it “the highest level since just after the Lehman Shock in 2009.” The more worrying trend is that the participants are not failing companies. The Nikkei now uses the term kuroji risutora (黒字リストラ, “profitable-company restructuring”).

When workers refuse the package, what happens? Employers use oidashi-beya (追い出し部屋, “chasing-out rooms”). The practice exists “to circumvent regulations preventing easy dismissal of permanent employees or to avoid paying enhanced retirement pay.”

California’s at-will baseline is heavily modified in the other direction. Per VentureBeat’s tracker and CNBC’s compilation, Google and Meta both paid 16 weeks base plus 2 weeks per year of service in the 2022 to 2025 layoff wave. A five-year mid-level engineer gets roughly 24 to 26 weeks. Employers pay any sort of severance is reducing chance of wrongful-termination litigation. Offering severance for a release is cheaper than a lawsuit. Especially, if the layoffs come at a suspicious time. As time goes on, Big Tech has been offering less and less severance per round.

Why the courts will not let employers exit the formal regime

It looks like these laws are nothing more than paper (with the exception of Japan of course). That’s not the whole truth. Japan is an aggressive case when it comes to enforcement but some cases are in the defense of the SMEs. On the other hand, Chinese and even Californian courts have started pushing back on the evasion mechanisms too.

China SPC’s Judicial Interpretation II (August 2025, effective September 1) directly attacks the standard playbook. Per the Jingtian Gongcheng law firm’s clause-by-clause analysis, “voluntary” social-insurance waivers are void and over-broad non-compete clauses on ordinary positions are void. The practice of “mixed employment” through affiliated companies triggers consolidated treatment of years of service. The Shanghai High People’s Court has invalidated PIP-driven dismissals where the employer skipped the required targeted training and transfer attempt. The SPC 32nd Batch Guiding Cases hold that termination grounds are locked in at the time of notice.

The Toyo Sanso case (Tokyo High Court, 1979) in Japan established the four-requirement framework still applied today. The Nihon Shokuen Seizō Supreme Court decision (1975) established the abuse-of-rights doctrine, codified verbatim into Article 16 of the Labour Contract Act in 2007. Voluntary retirement at premium prices exists because forced redundancy almost never survives judicial review.

California’s Supreme Court has slowly built four exception structures over four decades against at-will employment. Tameny v. Atlantic Richfield (1980) created a tort claim for wrongful discharge in violation of public policy. Foley v. Interactive Data (1988) recognized implied-in-fact contracts from handbook language and longevity. Guz v. Bechtel (2000) consolidated this framework. Green v. Ralee (1998) expanded public-policy sources to administrative regulations. At-will is still the law of the land in California. It’s just that the case law for litigation (that will undermine at-will) just keeps building.

The bottom half is easy to fire in all three places

What happens if you don’t have the time or the resources to get legal protections in China or Japan? Let alone take advantage of case law in California? The formal regime is simply inapplicable or unenforced, and dismissal is effectively at-will.

China, 200 to 240 million workers outside the Labour Contract Law

Per the State Council’s December 2025 report to the NPC Standing Committee, flexibly employed workers (think food delivery and rideshare apps) exceed 200 million. Caixin and Jinan University’s IESR put the figure at 240 million as of end-2024. As Qiushi puts it, “Some platform companies, in order to reduce labor costs, use franchise, agency, or contracting arrangements to lengthen the employment chain, or have workers register as individual industrial and commercial households, blurring the labor relationship.” Only 70.57 million flexible workers were enrolled in basic urban-employee pension insurance (roughly 30% coverage). These workers can be “fired” by app deactivation.

Small-firm Chinese employers routinely ignore the Labour Contract Law and take the risk. Migrant workers without proper contracts (which is more likely the case than not) are paid in cash and dismissed verbally with no recourse.

21 million non-regular Japanese workers face yatoi-dome

Per Q4 2025 labour force data, 21.26 million of 58.66 million employed workers are non-regular (36.2%). The share rose from 31.4% in 2004 to 37.1% in 2023 per MHLW data. Yatoi-dome (雇止め) is the term for non-renewal of fixed-term contracts. It is functionally a dismissal but is not legally treated as one. The Cabinet Office’s OECD EPL analysis shows Japan’s regular/non-regular protection gap is the 6th-largest in the OECD and has widened since the 1990s.

Japanese SMEs face an additional informal mechanism. Per the Nihon no Jinjibu encyclopedia, SMEs “face practical difficulty satisfying the four redundancy requirements” because they lack reassignment options and temporary-layoff capacity. Courts respond with “totality of circumstances” review which makes informal pressure more workable for SMEs.

California, at-will with no litigation tail at small firms

California’s at-will baseline is the default for almost everyone outside large firms. The wrongful-termination doctrines requires protected-class or protected-activity violation or an employer with enough assets that a contingency-fee plaintiff’s lawyer will take the case. Neither condition is typically met at small or even mid size employers.

More insecure forms of work like delivery apps are more explicitly carved out. California’s Proposition 22 classifies app-based drivers as independent contractors. They can be deactivated without cause and without recourse. Same as in China.

China’s welfare expansion as a response to the demand problem

Net it out. If you have the resources, you get more protection in China than California on dismissal (and only barely, when PIPs are in play). That said, China’s growing pro-employee case law isn’t a leftward turn. It’s a developmentalist state responding to several pressures at once. Demographic collapse. Weak household demand. A fiscal squeeze on the local governments that built the development model in the first place.

The demographic shock

Population fell for a third consecutive year in 2024. The NBS reported a year-end population of 1.408 billion, a decline of 1.39 million, with 9.54 million births against 10.93 million deaths. James Liang, in an essay on Sina Finance, notes the underlying decline accelerated. Dragon years average 6.4% more births than rabbit years, and 2024 only delivered 5.8%. A widely cited demographic report on Gelonghui puts China’s TFR around 1.02 in 2023. Per the China Association of Social Security, the 20 to 29 female cohort shrank by roughly 4.4 million per year between 2017 and 2022.

The State Council Development Research Center’s She Yu states the official framing. “The excessive cost of child-rearing has become the principal factor suppressing fertility intentions.” Ageing compounds it. The 2025 China Pension Finance White Paper reports 65+ at 15.6% of the population in 2024. CASS pension scholar Zheng Bingwen, at the 2025 Boao Forum, projects super-aged status (≥20% over 65) by 2032. Pension fund cash-deficit and reserve-exhaustion dates have been pushed from 2028/2035 to 2036/2044. Delay, not solution.

The childcare subsidy

Per the Implementation Plan jointly issued by the General Offices of the CCP and the State Council on July 28, 2025, every child born on or after January 1, 2025 receives 3,600 yuan per year until age three. The State Council Information Office press conference of July 30, 2025 confirmed Ministry of Finance budget of roughly 90 billion yuan for 2025. What’s unusual is the central government bearing about 90% of the cost rather than forcing provincial and local governments to pay for it. The Economic Daily called this “the first large-scale, universalized, direct cash benefit to the population since the founding of the PRC.”

China’s welfare state has historically operated through employers and hukou-linked entitlements. Almost never through a more universalist cash transfer. 3,600 yuan amounts to roughly 300 yuan per month.

Hukou liberalisation is a long trajectory, fiscally bottlenecked

A Peking University NSD working paper by Zhang Jipeng and Chen Zhu reconstructs the slow history of hukou liberalization. Small cities fully opened in 2014. Type-II large cities (1 to 3 million urban population) had restrictions abolished in 2019. The State Council’s July 2024 Five-Year Action Plan formalised removal of settlement restrictions in all cities below 3 million, substantial liberalisation for 3 to 5 million, and points-based settlement for the five megacities. A December 2025 State Council report to the NPC Standing Committee records that from 2019 to 2024 the resident-population urbanisation rate rose from 62.7% to 67.0%, and the urban-rural income ratio fell from 2.64 to 2.34. The State Council’s March 2025 acknowledgment put central incentive transfers for migrant-citizen public-service provision at 40 billion yuan in 2024 and 42 billion yuan in 2025.

40 billion yuan is a rounding error against what local governments have lost. Per the Sina Finance “China Land Finance Report 2024”, land-transfer revenue fell from a 2021 peak of 8.5 trillion yuan to 5.8 trillion in 2023, a 31.7% decline, and continued falling to roughly 4.87 trillion in 2024 per a Zhihu fiscal analysis. Land revenue averaged 34% of local government revenue from 2012 through 2023, peaking at 43.2% in 2020. Local dependence on central transfer payments rose from 28.6% of local revenue in 2021 to 36% by 2023, and Heilongjiang and Tibet receive over 80% of their fiscal spending from central transfers. Local governments lost roughly 3 trillion yuan in annual land revenue between 2021 and 2024. The 40-billion-yuan migrant-citizen fund is just over 1% of that loss. Beijing is filling a crater with a teaspoon.

This is why hukou reform is gradual. The cities most able to absorb migrants are precisely the cities that lost the most land revenue and now lack local fiscal capacity to expand public schools, public housing, and public health services.