The General Equilibrium Effects of Chinese Urban Housing Reforms on the Wage Structure∗ (Preliminary Version)

We study the wage structure during economic transition in the context of Chinese cities and examine the effect of China’s urban housing reforms on the urban wage structure (1988-2005). We find that these reforms, which untied access to housing from state-sector employment, shifted approximately 17% of the labor force from the state sector to the private sector, increasing the private sector labor supply by approximately 85%. Most of the movement was driven by young labor. Using the changes in labor supply induced by the housing reforms, we estimate the demand elasticities of labor with respect to wages for each sector and the substitution elasticity between young and old labor in the state sector. We find evidence of downward sloping demand curves in both the state and private sectors. The demand in the state sector is more elastic. Moreover, we find that young and old labor are highly substitutable in the state sector.