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The Effects of Wage Distortions on the Transition: Theory and Evidence from China

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  • Gordon, R.H.
  • Li, D.D.

Abstract

Before the reforms, the Chinese government had strong distributional objectives, which it pursued mainly by direct controls over state enterprise wage rates and hiring decisions. During the reform period, similar controls over state enterprises continued, but use of them had to re ect competition with the new nonstate sector that was mostly free from these controls. Based on these distributional considerations alone, we can explain: 1) a decline in the skills of workers in the state sector as the most able workers leave, 2) higher productivity in the nonstate sector, which consists of the most able workers, 3) accounting losses in the state sector, re ecting the transfer of tax revenue to nance higher wage payments to the unskilled, and 4) restructuring within the state sector, to reduce the distortions to relative wage rates. Many of these attributes are shared with other types of transition process.

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Bibliographic Info

Paper provided by Michigan - Center for Research on Economic & Social Theory in its series Papers with number 97-04.

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Length: 27 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:fth:michet:97-04

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Postal: UNIVERSITY OF MICHIGAN, DEPARTMENT OF ECONOMICS CENTER FOR RESEARCH ON ECONOMIC AND SOCIAL THEORY, ANN ARBOR MICHIGAN U.S.A.

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Keywords: PUBLIC SECTOR ; ECONOMIC REFORM ; WAGES ; LABOUR MARKET ; PRODUCTIVITY;

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References

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  1. Roland, G., 1992. "The Political Economy of Restructuring and Privatization in Eastern Europe," Papers 9218, Universite Libre de Bruxelles - C.E.M.E..
  2. Aghion, P. & Blanchard, O.J., 1993. "On the Speed of Transition in Central Europe," Working papers 93-8, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Philippe Aghion & Olivier Jean Blanchard, 1994. "On the Speed of Transition Central Europe," NBER Working Papers 4736, National Bureau of Economic Research, Inc.
  4. Sachs, J.D. & Woo, W.T., 1994. "Structural Factors in the Economic Reforms of China, Eastern Europe and the Former Soviet Union," Papers 94-01, California Davis - Institute of Governmental Affairs.
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Cited by:
  1. Su, Biwei & Heshmati, Almas, 2011. "Development and Sources of Labor Productivity in Chinese Provinces," IZA Discussion Papers 6263, Institute for the Study of Labor (IZA).
  2. Xiao-yuan Dong & Paul Bowles, 2002. "Segmentation et discrimination dans le marché du travail émergent de l'industrie chinoise," Revue d’économie du développement, De Boeck Université, vol. 16(3), pages 73-111.
  3. Chong-En Bai & David D. Li & Zhigang Tao & Yijiang Wang, 2001. "A Multi-Task Theory of the State Enterprise Reform," William Davidson Institute Working Papers Series 367, William Davidson Institute at the University of Michigan.
  4. Bai, Chong-En & Li, David D. & Tao, Zhigang & Wang, Yijiang, 2000. "A Multitask Theory of State Enterprise Reform," Journal of Comparative Economics, Elsevier, vol. 28(4), pages 716-738, December.
  5. Jed Friedman, 2004. "Firm Ownership and Internal Labor Practices in a Transition Economy: An Exploration of Worker Skill Acquisition in Vietnam," William Davidson Institute Working Papers Series 2004-696, William Davidson Institute at the University of Michigan.
  6. Zhong Zhao, 2005. "Migration, Labor Market Flexibility, and Wage Determination in China: A Review," Labor and Demography 0507009, EconWPA.

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