Voluntary and Involuntary Job Mobility and Earnings Inequality in Urban China, 1993-2000

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 ten Chinese cities reveals that recent entrants into the market are driven by two different institutional processes – some are self-selected for higher economic returns (voluntary entrants) and some are pushed into the market through layoffs (involuntary entrants), resulting in a more heterogeneous body of workers in the market sector than before. Linear regression results show that the commonly observed higher earnings in the market sector are limited only to a subgroup of later entrants who enter the sector voluntarily. Propensity score matching analyses further demonstrate that 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.