Unemployment and Urban Poverty in China: A Case Study of Guangzhou and Tianjin
Author(s)
Yao, Shujie
Abstract
Recent reforms on state-owned enterprises have led to millions of workers retrenched. This paper presents two theoretical models, one to explain why firms have to lay-off workers, and the other to explain how redundancy can affect poverty. Both first-hand and official survey data are used to examine how redundancy has affected the living standards and poverty of urban households. It is estimated that about one-fifth of the current urban poverty has been caused by the redundancy programme. The survey results have a number of interesting findings, which have important policy implications. It is concluded that the pressure to lay-off workers was due to excessively high wages and the cessation of soft budget. The probability of a household falling into poverty depends not only on the probability that household members are retrenched, but also on the probability that retrenched workers can find alternative employment. Most affected households do not think the reform is wrong, but they are pessimistic about their future. The government is thought to be ineffective in helping retrenched workers, and poverty is to become a permanent feature of urban China, an ironic phenomenon that was unthinkable even before the economic reforms started in 1978.
