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When the Bureaucrats Move out of Business : A Cost-Benefit Assessment of Labor Retrenchment in China / Chen, Yi
World Bank Open Knowledge Repository (formerly "World Bank E-Library Publications") Available online
View online- Format:
- Book
- Government document
- Author/Creator:
- Chen, Yi
- Series:
- Policy research working papers.
- World Bank e-Library.
- Language:
- English
- Subjects (All):
- Economic Growth.
- Economic Theory and Research.
- Finance and Financial Sector Development.
- Financial Literacy.
- High Wages.
- Job.
- Job Creation.
- Jobs.
- Labor.
- Labor Force.
- Labor Market.
- Labor Markets.
- Labor Policies.
- Labor Productivity.
- Labor Redeployment.
- Macroeconomics and Economic Growth.
- Municipal Financial Management.
- Open Unemployment.
- Previous Results.
- Private Enterprise.
- Private Sector.
- Private Sector Activity.
- Private Sectors.
- Production Function.
- Public Sector Economics and Finance.
- Social Protections and Labor.
- State Owned Enterprise Reform.
- State-Owned Enterprises.
- Unemployment.
- Urban Development.
- Worker.
- Workers.
- Local Subjects:
- Economic Growth.
- Economic Theory and Research.
- Finance and Financial Sector Development.
- Financial Literacy.
- High Wages.
- Job.
- Job Creation.
- Jobs.
- Labor.
- Labor Force.
- Labor Market.
- Labor Markets.
- Labor Policies.
- Labor Productivity.
- Labor Redeployment.
- Macroeconomics and Economic Growth.
- Municipal Financial Management.
- Open Unemployment.
- Previous Results.
- Private Enterprise.
- Private Sector.
- Private Sector Activity.
- Private Sectors.
- Production Function.
- Public Sector Economics and Finance.
- Social Protections and Labor.
- State Owned Enterprise Reform.
- State-Owned Enterprises.
- Unemployment.
- Urban Development.
- Worker.
- Workers.
- Physical Description:
- 1 online resource (48 pages)
- Place of Publication:
- Washington, D.C., The World Bank, 1999
- System Details:
- data file
- Summary:
- May 2000 - Reformers of China's state enterprises should realize that more could be realized from capital transfer than is being gained from labor retrenchment. And more efficient capital allocation, by reducing the pressure on labor, would bring larger gains at a lower social cost. Chen and Diwan estimate the costs and benefits of labor retrenchment in state-owned industrial enterprises in China. Their results indicate the prevalence of low and stagnant labor productivity, low capital productivity, and excessively high wages in the state sector for the period reviewed (1994-97). The private sector exhibited consistently greater productivity. The authors' most striking finding: A greater gain could be realized from capital transfer than is being gained from labor retrenchment. Their simulation results for 1996 estimate that 43 percent of the workers in state enterprises and 70 percent of the capital are redundant. By itself, a transfer of labor from the public to the private sector at the current magnitude (20 percent of the labor force) would secure only 2 percent gains in output. A transfer of 10 percent of both capital and labor would achieve a greater efficiency gain than transferring the full 43 percent of redundant workers. This is partly because the private sector uses capital more efficiently than the public sector and partly because it needs capital to hire workers transferred from the public sector. Their results suggest that reform in state enterprises should concentrate more on the efficiency of capital allocation, not just on labor retrenchment. More efficient capital allocation would reduce the pressure on labor and would bring larger gains at a lower social cost. This paper - a product of the Economic Policy and Poverty Reduction Division, World Bank Institute - is part of a larger effort in the institute to study the architecture of reform. The authors may be contacted at ychen@dol.eta.gov or idiwan@worldbank.org
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