ABSTRACT
In restructuring a state economy, regardless of the political system, the government may play an important role in addressing the issue of layoffs. For instance, in the mid-1980s when the Japanese government privatized the national railways, it reassigned about 90,000 redundant employees by encouraging early retirement or by providing alternative jobs or training. 1 Cao, Qian, and Weingast have likewise suggested that the Chinese local government has employed an ex ante–ex post arrangement in dealing with laid-off workers in the course of privatization. As an ex ante measure, the government provides laid-off workers with credible compensation for a given period of time; ex post, the government helps laid-off workers find new jobs, thereby reducing resistance. Hence, this mode of reform “not only buys workers” but also “buys them out.” 2 Yet, this ex ante–ex post arrangement is premised on a number of assumptions about the government and workers. One is that the government assumes responsibility for the firms and has the financial ability to provide subsidies to laid-off workers ex ante. A second assumption is that, with the help of the government, laid-off workers are able to find new jobs and more important, that these new jobs provide similar insurance benefits.
