Working Paper | HBS Working Paper Series | 2016

Economic Transition and Private-Sector Labor Demand: Evidence from Urban China

by Lakshmi Iyer, Xin Meng, Nancy Qian and Xiaoxue Zhao

Abstract

This paper studies the policy determinants of economic transition and estimates the elasticity demand for labor in the infant private sector in urban China. We show that a reform that untied access to housing in urban areas from working for the state sector accounts for more than a quarter of the overall increase in labor supply to the private sector during 1986–2005. We do not find any increase in self-employment. Using the reform to instrument for private-sector labor supply, we find that private-sector labor demand is very elastic, with elasticity estimates ranging between -3.1 and -5.3.

Keywords: Economic Transition; Structural Change; Labor Mobility; Transition; Human Capital; Private Sector; China;

Citation:

Iyer, Lakshmi, Xin Meng, Nancy Qian, and Xiaoxue Zhao. "Economic Transition and Private-Sector Labor Demand: Evidence from Urban China." Harvard Business School Working Paper, No. 14-047, December 2013. (Revised April 2016.)