7 - Ownership structure, labour compensation and labour demand

Summary

The labour market reforms introduced into the urban state sector have not resulted in a productivity-related wage determination system. It was conjectured in chapter 6 that this might be due to deep-rooted problems associated with the ownership structure within the urban state sector. In this chapter, this conjecture is tested by comparing the employment and labour compensation outcomes of firms with different ownership structures.

Enterprise reforms and ownership structures

As a result of economic reforms, the share of the state and collective sectors in total urban employment had declined from 99 to 83 per cent by 1995. Over the same period, the employment share of the urban private sector increased from 0.2 to 16.4 per cent (SSB, various years b). Despite the changes, the state sector still clearly dominates urban employment.

Following the early success of agricultural reforms in the early 1980s the central and provincial governments made numerous attempts to reform the state-owned industrial sector. The main focus of the government's initial efforts to improve the managerial efficiency of the SOEs was to experiment by providing increased autonomy and financial incentives for managers.

Since the beginning of 1981 the ‘economic responsibility system’ (ERS) has been gradually introduced to the SOEs. This system allows managers of the SOEs to draw up production plans and to sell their above-plan output to other enterprises at a market price. Most importantly, it allows the SOEs to retain a share of their profits.