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Labor Allocation in China: Implicit Taxation of the Heterogeneous Non-State Sector

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  • Fariha Kamal
  • Mary E. Lovely

Abstract

Using China's Annual Survey of Industrial Production, we estimate the marginal revenue product of labor (MRPL) for all state-owned and above-scale non-state manufacturing firms for 2001--2004 and 2004--2007. We find that labor productivity varies systematically within industries by ownership type and that non-state firms face implicit labor taxation relative to state-owned enterprises (SOEs). We also find that, in keeping with ongoing reforms of the state sector, ownership differentials fall over time, with gaps between non-state enterprises and SOEs falling by about half over time. Within the non-state sector, enterprises registered as legal persons have higher MRPL, on average, than do firms registered as collective or private enterprises. Disaggregating this group using information on equity shares reveals that firms registered as legal persons and majority owned by legal persons have the highest MRPL relative to SOEs. Indeed, these enterprises show significantly higher MRPL than those firms directly controlled by the state. Legal-person firms with majority state ownership have MRPL differentials similar to those for legal-person firms with majority private or majority collective ownership. This evidence is consistent with continuing, albeit diminishing, implicit labor subsidies for directly SOEs but not for firms whose shares are owned by the state, even if those shares are registered to legal persons. (JEL codes: L16, O53, P23, P31) Copyright The Author 2012. Published by Oxford University Press on behalf of Ifo Institute, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

Suggested Citation

  • Fariha Kamal & Mary E. Lovely, 2013. "Labor Allocation in China: Implicit Taxation of the Heterogeneous Non-State Sector," CESifo Economic Studies, CESifo Group, vol. 59(4), pages 731-758, December.
    • Handle: RePEc:oup:cesifo:v:59:y:2013:i:4:p:731-758
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    Cited by:

    1. Loren Brandt & Trevor Tombe & Xiadong Zhu, 2013. "Factor Market Distortions Across Time, Space, and Sectors in China," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 39-58, January.
    2. Chang-Tai Hsieh & Zheng (Michael) Song, 2015. "Grasp the Large, Let Go of the Small: The Transformation of the State Sector in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(1 (Spring), pages 295-366.
    3. Jin, Zhangfeng & Pan, Shiyuan, 2020. "Incentive Pay and Firm Productivity: Evidence from China," GLO Discussion Paper Series 479, Global Labor Organization (GLO).
    4. Dobbelaere, Sabien & Wiersma, Quint, 2020. "The Impact of Trade Liberalization on Firms' Product and Labor Market Power," IZA Discussion Papers 12951, Institute of Labor Economics (IZA).
    5. Loren Brandt & Trevor Tombe & Xiadong Zhu, 2013. "Factor Market Distortions Across Time, Space, and Sectors in China," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 39-58, January.
    6. Fariha Kamal & Mary E. Lovely & Devashish Mitra, 2019. "Trade liberalisation and labour shares in China," The World Economy, Wiley Blackwell, vol. 42(12), pages 3588-3618, December.
    7. Chang-Tai Hsieh & Zheng (Michael) Song, 2015. "Grasp the Large, Let Go of the Small: The Transformation of the State Sector in China," NBER Working Papers 21006, National Bureau of Economic Research, Inc.
    8. Peiwen Bai & Wenli Cheng, 2016. "Labour misallocation in China: 1980--2010," Applied Economics, Taylor & Francis Journals, vol. 48(25), pages 2321-2332, May.
    9. Chang-Tai Hsieh & Zheng (Michael) Song, 2015. "Grasp the Large, Let Go of the Small: The Transformation of the State Sector in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 50(1 (Spring), pages 295-366.
    10. Quint Wiersma, 2019. "The impact of WTO accession on Chinese firms' product and labor market power," Tinbergen Institute Discussion Papers 19-037/V, Tinbergen Institute.

    More about this item

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration

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