Labor System Reform in China and its Unexpected Consequences

Abstract

This paper traces the basic reforms in China's labor system and discusses the unexpected changes resulting from those reforms. Labor system reform in China was initiated in the late 1970s. The reform focused on relaxing direct control by various governmental departments and making better use of the market mechanisms in the labor market. Since the reform, people have more opportunities and freedom with respect to job selection and enterprise managers have more autonomy regarding hiring, rewarding and firing employees. Income differences are also becoming more significant. However, due to the simultaneous functioning of the dual system government control and market forces coupled with the lack of a well-established system, some people are distinctly more advantaged than others since the reform. Corruption has increased drastically, the majority of people are deeply frustrated and angered, something which contributed to the mass participation in the latest democratic movement in mid-1989. Based on research on China's labor system reform and comparison between China and the Soviet Union, our conclusions are that economic system reform and political system reform should be conducted simultaneously.