Labor market dynamics in urban China and the role of the state sector

• Published in: Journal of Comparative Economics Vol. 49; no. 4; pp. 918 - 932
• Main Authors: Feng, Shuaizhang, Guo, Naijia
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.12.2021
• Subjects: China; Labor market dynamics; Long-term unemployment; Search and matching; State sector; P23; Long-term unemployment; Labor market dynamics; China; J64; Search and matching; J45; State sector
• ISSN: 0147-5967; 1095-7227
• DOI: 10.1016/j.jce.2021.04.002

This paper studies the effect of state-owned enterprises (SOEs) on the dynamics of the Chinese urban labor market. Using longitudinally matched monthly panel data, we document very low labor force dynamics in the state sector, which leads to a high long-term unemployment rate. We develop and estimate an equilibrium search and matching model with three differences between the state and non-state sectors: labor productivity, labor adjustment cost, and workers’ bargaining power. Counterfactual analysis shows that, among the three channels, reducing the bargaining power of state sector workers is most effective in reducing unemployment duration and unemployment rate. •We use unique monthly panel data to document low labor market dynamics in the state sector in China.•We develop and estimate an equilibrium search and matching model with two sectors.•The state and private sectors are different in their labor productivity, labor adjustment cost, and workers’ bargaining power.•Reducing the bargaining power of state sector workers is most effective in reducing unemployment duration and unemployment rate among the three channels.