The Macroeconomic Effects of Waiting Workers in the Chinese Economy

doi:10.1006/jcec.1997.1499

Journal of Comparative Economics

Volume 26, Issue 1, March 1998, Pages 150-164

https://doi.org/10.1006/jcec.1997.1499 Get rights and content

Abstract

Observation shows that the Chinese economy currently has two parallel sectors—the private and the state sectors—and a large number of employees of state-owned enterprises (SOEs) “waiting at home.” Using a model embodying these characteristics, it is argued that a reduction in the wage difference between working and waiting employees in SOEs will raise the values of real variables and reduce the price level. Moreover, expansionary monetary and fiscal policies will stimulate employment and real output at the expense of inflation. However, the outcome of liberalizing the labor market of the state sector might result in a decline in real output, which calls on the Chinese government to be cautious in the reform of the labor market.J. Comp. Econom.,March 1998, 26(1), pp. 150–164. La Trobe University, Bundoora, Victoria 3083, Australia.

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Cited by (7)

Reforming state owned enterprises in China: Effects of WTO accession
2010, Review of Economic Dynamics
In December 2001 China became a member of the World Trade Organization (WTO). By signing the accession protocol, China not only agreed to reform its trade policy, but it also accepted regulations that implied reductions on government subsidies to the state-owned sector. In this paper we claim that the latter, largely ignored in the literature, generate important welfare gains that need to be attributed to WTO accession. We develop a dynamic general equilibrium model with state and private enterprises. We calibrate the model to the Chinese economy and we quantitatively assess the economic effects of reducing subsidies to the state sector as required by the WTO. We find the welfare benefits of such reduction in subsidies to be substantial. Using the context of China, this paper identifies a new channel through which WTO accession increases a country's welfare: it induces reforms on domestic subsidies which lead to an increase in economic efficiency.
Soft budget constraints, social burdens, and labor redundancy in China's state industry
2003, Journal of Comparative Economics
The soft budget constraint hypothesis of Kornai (1980) offers an attractive explanation of over-manning in public enterprises. Sometimes overlooked in the literature is the fact that governments, especially in transition economies, often use state-owned enterprises (SOEs) to pursue non-financial objectives and to finance the resulting social burdens with subsidies and policy loans. In studying a panel of about 700 SOEs, we find that hardening budget constraints, without at the same time relieving SOEs from their social burdens, was a major proximate cause of rising redundant labor in the early 1990s in China.
A dynamic analysis of overstaff in China's state-owned enterprises
2001, Journal of Development Economics
Citation Excerpt :
When all of them are absorbed by new work opportunities, the economy will reach a new long-run steady equilibrium. In a related work, Yin (1998) analyzes the macroeconomic effects of SOE waiting workers with a static model and does not consider the reemployment issue of redundant SOE workers. However, this paper pays more attention to the dynamic transition process and the economic growth through absorbing redundant SOE workers.
Overstaff in state-owned enterprises (SOEs) is a key and difficult issue in the Chinese economic reform. This paper models the transition process in the reform that SOE overstaff is gradually absorbed by private enterprises and the economy grows through converting redundant SOE workers into active labor force. It characterizes the steady equilibrium, where all overstaff has been completely absorbed, and the dynamic path from current state to the steady equilibrium. The optimal transition strategy maximizing household utility is also discussed.
Contract management responsibility system and profit incentives in China's state-owned enterprises
2000, China Economic Review
Citation Excerpt :
Despite some of the lingering pre-reform legacy including the problem of soft budget, the reform is generally believed to have been successful in reincentivizing SOEs. Some even go further arguing that profit maximization is now the most important goal of SOEs both in practice and in the perception of SOEs' managers (Perkins, 1994; Groves et al., 1995; Yin, 1998). Contrary to the usual belief, the evidence on the performance of SOEs since the reform ranges from inconclusive to negative, especially when compared to enterprises with other ownership forms.
While the enterprise reform of China has provided profit incentives to its state-owned enterprises (SOEs), their poor performance relative to enterprises with other ownership forms remains puzzling. This article provides an answer to this puzzle by studying optimal managerial decisions under the enterprise reform. When the managers of SOEs make decisions under uncertainty to maximize their own expected compensation, it is shown that managerial contracts generally fail to provide incentives to managers for expected profit maximization. Necessary and sufficient conditions for the equivalence of the outcomes from maximizing expected compensation and expected profit are provided along with some policy implications for further reforms.
Business Strategy and Corporate Governance in the Chinese Consumer Electronics Sector
2011, Business Strategy and Corporate Governance in the Chinese Consumer Electronics Sector
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^☆: Edward, ChenToyojiro, Maruya

¹: I sincerely appreciate the valuable comments of two anonymous referees and the editor of this journal, John Bonin. I also owe thanks to Xiangshuo Yin who provided me with helpful comments and much empirical data supporting the ideas in the paper and to Gillian Hewitson whose detailed comments improved greatly the paper. This research is supported by the research fund of the School of Business, La Trobe University.

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Regular ArticleThe Macroeconomic Effects of Waiting Workers in the Chinese Economy☆

Abstract

J. Comp. Econom.

European Econom. Rev.

J. Comp. Econom.

Market Mechanism & Economic Reforms in China

Monetary Planning, Financial Reforms and Inflation in China

A Decade of “Open Door” Economic Development in China, 1979–1989

China's Reform and Development 1978–1994: The Chinese Road

The Rise of China as an Economic Power

Nat. Inst. Econom. Rev.

China's Hidden Economy

Regular Article
The Macroeconomic Effects of Waiting Workers in the Chinese Economy☆