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The effects of wage distortions on the transition:: Theory and evidence from China


  • Gordon, Roger H.
  • Li, David D.


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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Suggested Citation

  • Gordon, Roger H. & Li, David D., 1999. "The effects of wage distortions on the transition:: Theory and evidence from China," European Economic Review, Elsevier, vol. 43(1), pages 163-183, January.
  • Handle: RePEc:eee:eecrev:v:43:y:1999:i:1:p:163-183

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    References listed on IDEAS

    1. Philippe Aghion & Olivier J. Blanchard, 1994. "On the Speed of Transition in Central Europe," NBER Chapters,in: NBER Macroeconomics Annual 1994, Volume 9, pages 283-330 National Bureau of Economic Research, Inc.
    2. Roland, Gerard, 1993. "The political economy of restructuring and privatization in Eastern Europe," European Economic Review, Elsevier, vol. 37(2-3), pages 533-540, April.
    3. 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.
    4. Philippe Aghion & Olivier Jean Blanchard, 1994. "On the Speed of Transition Central Europe," NBER Working Papers 4736, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Dong, Xiao-yuan & Bowles, Paul, 2002. "Segmentation and discrimination in China's emerging industrial labor market," China Economic Review, Elsevier, vol. 13(2-3), pages 170-196.
    2. Zhong Zhao, 2005. "Migration, Labor Market Flexibility, and Wage Determination in China: A Review," Labor and Demography 0507009, EconWPA.
    3. Almas Heshmati & Biwei Su, 2013. "Development and Sources of Labor Productivity in Chinese Provinces," China Economic Policy Review (CEPR), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 1-30.
    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. 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.
    6. 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.
    7. 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. 10(3), pages 73-111.

    More about this item

    JEL classification:

    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • P50 - Economic Systems - - Comparative Economic Systems - - - General


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