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Wu, Xiaogang. 2006. "Socialist Workers in the Market Transition: Voluntary and Involuntary Job Mobility and Earnings Inequality in Urban China, 1993-2000." PSC Research Report No. 06-613. December 2006.
This paper proposes a model of selective mobility of workers from the state sector to the market sector to illustrate how the market transition has led to earnings inequality in former state socialist countries. Analysis of the survey data collected in 2000 from selected Chinese cities reveals that recent entrants into the market are driven by two different institutional processes – some are self-selected for higher economic returns and some are pushed into the market through layoffs, resulting in a more heterogeneous body of workers in the market sector than before. Propensity score analyses demonstrate that an early market entry has no causal effect on earnings, whereas the effect of a late market entry on earnings is negatively associated with the propensity of making such a transition. Those who would otherwise do well in the state sector and therefore have a lower propensity for entering the market benefit more from the entry. The commonly observed higher earnings in the market sector are limited only to a subgroup of later entrants who are self-selected into the market.