China's State-Owned Enterprises in the First Reform Decade: An Analysis of a Declining Monopsony

We study the evolution of employment and wage outcomes in Chinese SOEs during the first decade of economic reforms, studying a panel of data for almost 1000 enterprises covering the years 1980-90. Despite the consensus on the persistence of labor redundancy in the SOE sector, we find that capital-intensity remained so extreme that workers' marginal products exceeded their full wages, just as in a classical monopsony outcome. Consistent with expectations about the reform process, we find that the degree of monopsony declined during the 1980s, although it was not eliminated, and that monopsony was weakest where the state sector's shares of industrial output and enterprises were lowest, and for smaller enterprises and enterprises managed by lower levels of government. Our analysis also supports Xu and Zhuang's finding that bonus payments increased enterprises' revenues by more than it did their costs.