Political economy of labor retrenchment: Evidence based on China's state-owned enterprises

This study examines the determinants behind the restructuring of China's SOEs in the late 1990s. We have reached two major findings. First, we find that the degree of labor retrenchment is negatively related to enterprise performance, suggesting that poor performance is a major force driving labor restructuring. Second, we offer evidence that decisions on labor retrenchment in traditional SOEs are related to the local government's fiscal position and to local reemployment conditions for laid-off workers. In contrast, labor decisions in corporatized SOEs are not related to these two variables. Our results suggest that corporatized SOEs with partial private ownership may enjoy higher autonomy in labor decisions.