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

  • Gordon, R.H.
  • Li, D.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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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
Contact details of provider: 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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  1. 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.
  2. Blanchard, Olivier Jean & Aghion, Philippe, 1994. "On the Speed of Transition in Central Europe," Scholarly Articles 4481322, Harvard University Department of Economics.
  3. 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.
  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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