What Effect Does the Size of the State-Owned Sector Have on the Local Unemployment Rate in China

Abstract

The huge state-owned economy is a well-known feature of the Chinese economy. While the China Communist party views state-owned enterprises (SOEs) as an essential part of the Chinese economy, many observers are skeptical about SOEs’ contribution to economic growth and urban employment. The aim of this thesis is to examine and measure the effects SOEs have on China’s employment. I build a conceptual model to illustrate the mechanism of SOE share’s effect on urban employment rate and then estimate the effect using empirical research methods. The data are from the Chinese Statistical Yearbooks and Provincial Yearbooks of the past five years. Different measurements of the size of SOEs are included in the model, and also a variety of controlling factors, to capture the pure SOE effect. I find a positive correlation between the unemployment rate and the size of SOEs, while the magnitude is modest. A 1% increase of SOE share is associated with a 0.02% increase in the unemployment rate, holding all other factors constant. The result implies that the preferential policies of SOEs in China could have negative impacts on local employment.