Socialist Workers in Market Transition: Voluntary and Involuntary Job Mobility and Earnings Inequality in Urban China, 1993-2000

Xiaogang Wu, Hong Kong University of Science and Technology

This paper develops a model of selective mobility of workers from the state to the market sectors to illustrate how the market transition has led to earnings inequality in former state socialist countries. Analysis of the sample data collected in 2000 from 10 Chinese cities reveals that recent entrants into the market are driven by two different institutional processes – some are self-selected for higher economic returns and some are pushed into the market in massive layoffs, resulting in a more heterogeneous body of workers in the market sector than before. Propensity score analyses show that an early market entry has no causal effect on earnings, whereas the effect of a later market entry on earnings is negatively associated with the propensity of making such transition. Those who would otherwise do well in the state sector and therefore have lower propensity of entering the market benefit more from the entry.