Transitions to Private Employment: Earnings Determination, Worker Employment Preferences, and Job Turnover in Urban China

Abstract

Despite ongoing restructuring of the Chinese economy, barriers to labor mobility and attendant stratification of China?s labor markets remain significant. Those barriers serve to reduce the efficiency of labor market allocations and accordingly inhibit wage equilibration and productivity growth. Constraints on labor mobility further hamper growth in private employment as well as government efforts to rationalize economic activity through the closure of insolvent state-owned enterprises. In this study, we apply unique matched worker-firm data from a recent survey of urban workers to examine existent stratifications of labor markets and transitions to private employment in urban China. In so doing, the analysis assesses wage determination, worker preferences for state versus private employment, and job turnover. As expected, research findings indicate higher returns to schooling in non-state sectors, in cities with more rapid private sector growth, in more profitable enterprises, and for less risk-averse workers. Results further show that preferences for state-sector employment decrease with schooling but increase with worker risk aversion. Workers? job-change prospects decrease with age, risk aversion, and restrictiveness of job preferences. Overall, results point to the importance of labor market transition policies and indicate the sizable efficiency and productivity gains that might arise from enhanced labor mobility.