The macroeconomic effects of waiting workers in the Chinese economy

Observation shows that the Chinese economy currently has two parallel sectors - the private and the state sectors - and a large number of employees of state-owned enterprises (SOEs) "waiting at home." Using a model embodying these characteristics, it is argued that a reduction in the wage difference between working and waiting employees in SOEs will raise the values of real variables and reduce the price level. Moreover, expansionary monetary and fiscal policies will stimulate employment and real output at the expense of inflation. However, the outcome of liberalizing the labor market of the state sector might result in a decline in real output, which calls on the Chinese government to be cautious in the reform of the labor market.J. Comp. Econom.,March 1998, 26(1), pp. 150-164. La Trobe University, Bundoora, Victoria 3083, Australia. © 1998 Academic Press.