Labor outcomes of partial privatization in state-owned enterprises: Evidence on employment and compensation under mixed ownership

This paper examines the impact of partial privation on labor outcomes in state-owned enterprises (SOEs). Using data from listed SOEs from 2007 to 2022, we find that increased or stable private shareholding does not significantly alter the growth rate of employee size but considerably reduces the growth rate of employee compensation. Our further analysis indicates that private shareholders primarily achieve this reduction by curbing excessive and inefficient labor investments. Specifically, private shareholders scale back short-term compensation and benefits and lower the proportion of low-skilled positions, shifting workforce composition toward higher productivity and better incentives. This adjustment in compensation structure largely occurs through mitigating the inherent soft budget constraints faced by SOEs. Overall, private capital involvement preserves SOEs' social objective of employment creation while enhancing operational efficiency.