Wage Determination Differences between Chinese State and Non-State Firms

Market-oriented economic reform has given much greater autonomy to state and collective enterprises' managers to make production, investment and marketing decisions. However, as the assets of these enterprises are still owned by government at different levels, the decision-making and risk-bearing functions of enter-prises may be divorced, firms are more likely to maximize income per employee rather than firm's profits. This hypothesis is tested in this paper by analysing Chinese enterprises' earnings determination behaviour using a data set encompassing state, collective and private sectors. The main findings are that the state and the collective sectors behave more like labour managed firms in that they try to maximize income per worker rather than profit, whereas private-sector firms are profit maximizers. Furthermore, collective-sector firms which bear a higher degree of risk, appear to base their profit sharing decisions more on enterprises' economic and financial performance, than do state-owned enterprises. Hence collective enterprises' bonus payments improve productivity more than do state-sector bonuses.