Regional value chains and spontaneous multi-employer wage coordination in China

Abstract

This article explores how wage determination is coordinated within a regional value chain in China's auto industry and the underlying mechanism that governs this coordination. While the market-economy reform over the past four decades has granted firms considerable autonomy in managing their own employees, this case demonstrates that in China's private sector, wage determination is not at individual employers' full discretion. In general, scholars agree that Western-style formal institutional structures for wage coordination – centralized collective bargaining – have not been effectively established in China. But in Tianjin's auto industry, spontaneous multi-employer wage coordination occurs through informal arrangements that leverage a lead firm's control over its suppliers and various social networks that connect employers, labor unions, and workers in the locality. As a result, wages across the local auto industry are greatly compressed. This article concludes by discussing the important role of informal institutions in China's private governance.