DP9794 Economic Transition and Private-Sector Labor Demand: Evidence from Urban China

Author(s): Lakshmi Iyer, Xin Meng, Nancy Qian, Xiaoxue Zhao
Publication Date: January 2014
Keyword(s): Economic Transition, Labor Mobility, Structural Change
JEL(s): J23, O12, P2, P26
Programme Areas: Labour Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9794

This paper studies the policy determinants of economic transition and estimates the demand for labor in the infant private sector in urban China. We show that a reform that untied access to housing in urban areas from working for the state sector accounts for more than a quarter of the overall increase in labor supply to the private sector during 1986-2005. Using the reform to instrument for private-sector labor supply, we find that private-sector labor demand is very elastic. We provide suggestive evidence that the reform equalized wages across sectors and reduced private-sector rents.