Abstract: The new Labor Contract Law in China,which came into force in 2008,aims to protect the interests of workers and regulates the contracts between workers and firms.However,it also induces firms to intensively use employment forms like “labor dispatching” and “labor outsourcing” to mitigate additional costs imposed by the law.The law has led to the formation of a new dual structure of labor market in China characterized by different contractual arrangements,thus exerting heterogeneous impacts on the production efficiency of Chinese firms.Based on the theory of firm boundary,firms are adjusting their boundary when they increasingly use “labor dispatching” or “labor outsourcing”.In this paper,we test whether this adjustment of firm boundary affects firm productivity.Using a difference-in-differences (DID) design,we find that the Labor Contract Law has a greater negative impact on the productivity of firms with higher contract intensity (Nunn,2007) as it is harder for these firms to adjust their boundary.This effect is more pronounced for private firms and firms in regions with more efficient law enforcement.In addition,we find that the Labor Contract Law decreases the number of employees and increases the capital intensity of firms with low contract intensity.These findings remain robust after controlling for factors like the 2008 financial crisis.