Growing Up in China's SOEs Reform

Abstract

This paper studies the impact of SOEs labor restructuring reform in the late 1990s in urban China on individuals’ trust in the central and local government. By exploiting provincial variation in number of layoffs, together with cohort-specific variation arising from the negative employment shock, we find that individuals with more exposure to layoffs in provinces and working ages during the reform period are associated with less trust in the central government and local government. This finding is robust to various checks including using migration restricted samples, adding more family backgrounds and provincial characteristics, as well as doing the placebo test. According to our estimates, more heavy burden of social pensions resulting from massive number of layoffs contributes to lower level of individuals’ trust in governments. In addition, “Impressionable Years Hypothesis” based on social psychology are able to explain the negative impact of layoffs on individuals’ trust in governments.