Forthcoming in China Economic Quarterly State - Owned Enterprise

Little is known about the magnitude of China’s SOE labor redundancy and the patterns and determinants of job creation. Such knowledge gap makes it difficult for decision-makers to provide prescriptions for China’s labor problems. This paper uses a panel data of Chinese provinces between 1986 to 1996 to estimate China’s SOE labor redundancy, and patterns and determinants of job creation in China. We find that (i) releasing all redundant workers would raise the average urban unemployment rate to 25 percent; (ii) SOE labor redundancy proved to be a major impediment of job creation; (iii) patterns of job creation performance were mainly explained by structural variables such as SOE labor redundancy, schooling, railway mileage, and distance to seaport; and (iv) demand variables such as GDP growth rates, trade exposure and FDI inflow, in contrast, did not explain much. JEL Code: J4, particular labor markets; J6, mobility, unemployment, and vacancies; P5, comparative economic systems.