PUBLICATIONS & REPORTS

Contents Introduction

This paper demonstrates that China has made substantial progress in its transition to a market-driven economy, and privatization and federalization have been very important factors in improved business efficiency. To date, not much systematic research has been done to reveal the details of the dynamics of China’s labor market and its relation to China’s extensive restructuring process. This study provides an indepth and initial look at the gross job flows for China’s large and medium industrial enterprises during 19952003. By exploring a firm level data set, we focused on deriving a time series of gross job flow statistics and link them with associated entrants, exits, or firms with continuing operations. The time series of job flow statistics exhibits wide-ranging enterprise restructuring, which has increasing effects on the labor market from year 1998 on. Our gross job flow analysis also illustrates that government controlled enterprises and federally administered firms were at the center of restructuring. Because of the extensive reorganization in the labor market, the labor productivity of China’s large and medium industrial firms as a whole was astounding, growing at an annual rate of 20.4 percent. Although private firms still outperformed government controlled firms, these government controlled firms pushed up their labor productivity growth by shedding off redundant employment and reorganizing into joint stock enterprises. Shifts of governmental regulation to more local areas have also created a productivity stimulus for federally administered firms to catch up with firms at the local government level.