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Market Transition and the Firm: Institutional Change and Income Inequality in Urban China

Author

Listed:
  • Victor Nee

    (Cornell University)

  • Yang Cao

    (University of North Carolina)

Abstract

This paper examines how the rise of a market economy in urban China redefines the rules governing economic activities and affects on earnings inequality. We identify three causal mechanisms linked to institutional change that are transforming the firm's employment practices: the higher marginal productivity of a private enterprise economy relative to state-owned enterprises, competition by firms for skilled and semi-skilled labor following emergence of labor markets and the end of state monopoly on labor allocation, and increased emphasis on merit-based reward systems in firms. Analyses of survey data from urban China show how these three causal mechanisms stemming from the transition to a market economy contribute to new patterns of earnings differentiation that increase income returns to human capital and private-sector entrepreneurship.

Suggested Citation

  • Victor Nee & Yang Cao, 2004. "Market Transition and the Firm: Institutional Change and Income Inequality in Urban China," Management and Organization Review, International Association of Chinese Management Research, vol. 1(1), pages 23-56, June.
    • Handle: RePEc:cmr:mor101:v:1:y:2004:i:1:p:23-56
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    Citations

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    Cited by:

    1. Min-Dong Lee, 2006. "Widening Gap of Educational Opportunity?: A Longitudinal Study of Educational Inequality in China," WIDER Working Paper Series RP2006-66, World Institute for Development Economic Research (UNU-WIDER).
    2. Krug, B. & Hendrischke, H., 2006. "Framing China: Transformation and Institutional Change," ERIM Report Series Research in Management ERS-2006-025-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    3. Tan, Wenhao & Wang, Qiong & Guo, Xiuyuan & Chen, Jiangting, 2022. "Political connections and managerial premiums in the labor market: Evidence from China," Economic Modelling, Elsevier, vol. 114(C).
    4. Krug, B. & Hendrischke, H., 2006. "Institution Building and Change in China," ERIM Report Series Research in Management ERS-2006-008-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.

    More about this item

    Keywords

    China; Earning Inequality; Institutional Change; Labor Marketization; Market Transition; Merit-based Reward System; Private-owned Enterprises;
    All these keywords.

    JEL classification:

    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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