ABSTRACT

Over the past decade, traditional job guarantees and economic security provided by urban state-owned enterprises (SOEs) in China have been reduced as part of a nationwide economic reform effort. To help workers transition to the free labour market, China instituted what was called the xiagang system. Xiagang were redundant workers who remained attached to the SOE and to whom the SOE provided subsistence income payments along with contributions to public health insurance and pension funds, and often times housing. While the aim was to smooth labour adjustment, many redundant workers have experienced significant income losses and difficulty finding new jobs. The xiagang system has been dismantled, and much restructuring has already occurred. Still, even the most optimistic observers recognize that China faces more labour adjustment challenges, especially with reforms called for by China’s accession to the World Trade Organization (WTO). China – like virtually all countries and especially transition countries – is increasingly facing difficult policy questions about how to address the problem of laid-off workers, in order to provide effective social protection and maintain social stability.