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

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