The Decline of In-kind Wage Payments in Urban China

Shi Li () and Yaohui Zhao

Journal of Chinese Economic and Business Studies, 2003, vol. 1, issue 2, 245-258

Abstract: Chinese collective and state-owned enterprises have tended to over-compensate their employees. Using payments in kind as an example, this paper examines why and how firms engage in such 'irrational' behavior. In-kind payments (payments made in terms of consumer goods) used to be an important aspect of urban life in China - 68% of our sample workers received payments in kind in 1988. The ratio declined to only 10% in 1999. In explaining the prevalence of in-kind payment in the 1980s and the subsequent decline in the 1990s, two hypotheses are proposed. The first is the lack of access to consumer goods by individuals. The second is to evade the control on wage bills imposed by the government. Empirical evidence from an urban household survey is consistent with the second hypothesis. The results imply that the introduction of a hard budget constraint is essential to ensure the rational behavior of public enterprises in setting their wage payments.

Keywords: Payment In Kind; Chinese Collective And State-owned Enterprises; Government Control; Budget Constraints; Rational Behavior (search for similar items in EconPapers)
Date: 2003
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DOI: 10.1080/1476528032000066703

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