Labor Market Dynamics in Urban China and the Role of the State Sector

79 Pages Posted: 21 May 2019

See all articles by Shuaizhang Feng

Shuaizhang Feng

Shanghai University of Finance and Economics

Naijia Guo

The Chinese University of Hong Kong (CUHK)

Date Written: February 2019

Abstract

This paper studies the effect of state-owned enterprises on the dynamics of the Chinese urban labor market. Using longitudinal monthly panel data, we document very low dynamics in the labor market, especially in the state sector. We develop and calibrate an equilibrium search and matching model with three differences between the state and the non-state sector: labor productivity, labor adjustment cost, and workers' bargaining power. Counterfactual analysis shows that the lack of dynamics is mainly driven by the strong bargaining power of state-sector workers. Eliminating the differences between the two sectors substantially reduces the unemployment rate and long-term unemployment rate.

Keywords: state sector, labor market dynamics, search and matching, China, long-term unemployment

JEL Classification: J64, J45, P23

Suggested Citation

Feng, Shuaizhang and Guo, Naijia, Labor Market Dynamics in Urban China and the Role of the State Sector (February 2019). IZA Discussion Paper No. 12170, Available at SSRN: https://ssrn.com/abstract=3390157

Shuaizhang Feng (Contact Author)

Shanghai University of Finance and Economics

777 Guoding Road
Shanghai, AK 200433
China

Naijia Guo

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

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