Labor retrenchment in China. Determinants and consequences

The recent policy of labour retrenchment in state-owned enterprises in China (known as xia gang) has important implications for both efficiency and equity. This paper examines the individual-level determinants and consequences of the xia gang policy, using a survey conducted in the year 2000. As many as 11% of urban workers had been retrenched, and 53% of these remained unemployed. The risk of retrenchment was higher for women, the less educated, the low skilled, the middle-aged, and those employed by local government or urban collectives. Reemployment rates are low and imply that unemployment will be long-term. The duration of unemployment is longer for the unhealthy, the less educated, and women with young children. Unemployment benefit has no effect on the duration of unemployment. The income losses from retrenchment stem largely from the loss of earnings while unemployed. However, reemployed workers are paid less than if they were never retrenched.