Piecemeal Labour Market Liberalisation and Entrepreneurship in China's Transition

Abstract

Existing studies argue that China's dual-track approach to economic reforms offers lessons for other transition economies. Ignoring the piecemeal nature of the track-merging process, the literature has not supported this theory empirically. We identify the impacts of China's piecemeal unification of the dual-track job-assignment system on entrepreneurship, arriving at three conclusions. First, the partial unification of the system has played as important a role as full unification in relaxing constraints on college graduates' entrepreneurship incentives. Second, the system encourages college graduates to take planned-track jobs first and then traps them on the planned track through career-path dependence, explaining the mechanism. Third, with respect to the three types of planned-track jobs, the piecemeal merging completely eliminates bias towards college graduates associated with jobs in state-owned enterprises and weakens their career-path dependence while only partially correcting for bias associated with government and institute jobs without affecting career-path dependence in those cases.