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The Decline of In-kind Wage Payments in Urban China

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  • Shi Li
  • Yaohui Zhao
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Abstract

Chinese collective and state-owned enterprises have tended to over-compensate their employees. Using payments in kind as an example, this paper examines why and how firms engage in such 'irrational' behavior. In-kind payments (payments made in terms of consumer goods) used to be an important aspect of urban life in China - 68% of our sample workers received payments in kind in 1988. The ratio declined to only 10% in 1999. In explaining the prevalence of in-kind payment in the 1980s and the subsequent decline in the 1990s, two hypotheses are proposed. The first is the lack of access to consumer goods by individuals. The second is to evade the control on wage bills imposed by the government. Empirical evidence from an urban household survey is consistent with the second hypothesis. The results imply that the introduction of a hard budget constraint is essential to ensure the rational behavior of public enterprises in setting their wage payments.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Journal of Chinese Economic and Business Studies.

Volume (Year): 1 (2003)
Issue (Month): 2 ()
Pages: 245-258

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Handle: RePEc:taf:jocebs:v:1:y:2003:i:2:p:245-258

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Related research

Keywords: Payment In Kind; Chinese Collective And State-owned Enterprises; Government Control; Budget Constraints; Rational Behavior;

References

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  1. Woodbury, Stephen A, 1983. "Substitution between Wage and Nonwage Benefits," American Economic Review, American Economic Association, vol. 73(1), pages 166-82, March.
  2. Woo Wing Thye & Hai Wen & Jin Yibiao & Fan Gang, 1994. "How Successful Has Chinese Enterprise Reform Been? Pitfalls in Opposite Biases and Focus," Journal of Comparative Economics, Elsevier, vol. 18(3), pages 410-437, June.
  3. Thomas A. Wolf, 1991. "The Lessons of Limited Market-Oriented Reform," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 45-58, Fall.
  4. Long, James E & Scott, Frank A, 1982. "The Income Tax and Nonwage Compensation," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 211-19, May.
  5. Richard B. Freeman, 1978. "The Effect of Trade Unionism on Fringe Benefits," NBER Working Papers 0292, National Bureau of Economic Research, Inc.
  6. Gary H. Jefferson & Thomas G. Rawski, 1994. "Enterprise Reform in Chinese Industry," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 47-70, Spring.
  7. Bonin, John P & Jones, Derek C & Putterman, Louis, 1993. "Theoretical and Empirical Studies of Producer Cooperatives: Will Ever the Twain Meet?," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1290-320, September.
  8. Feldstein, Martin S, 1973. "The Welfare Loss of Excess Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 251-80, Part I, M.
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Cited by:
  1. Gustafsson, Björn Anders & Li, Shi & Sato, Hiroshi, 2014. "Data for Studying Earnings, the Distribution of Household Income and Poverty in China," IZA Discussion Papers 8244, Institute for the Study of Labor (IZA).

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