“The Political Economy of State Employment and Instability in China” by Dr. Jaya Wen
Dr. Jaya Wen
Harvard Business School
This paper demonstrates that China uses state employment to promote social stability via job provision. I first document that state employment increases after natural disasters and poor trade shocks, and is concentrated on demographics most prone to unrest participation. Then, I use variation from an ethnic conflict in China’s Xinjiang province to establish that, in times and places with a higher threat of ethnic unrest spillover, state-owned firms hire more male minorities – precisely the demographic most likely to participate in ethnic unrest. Concurrently, male minority wages rise and private firms hire fewer people from this group. These patterns are consistent with a model of government-subsidized, stability-oriented state employment. A model-derived quantification exercise suggests that state firms implicitly receive a 26% subsidy on male minority wages.