The role of social capital in the labour market in China1

Social capital is considered to play an economic role in labour markets. It may be particularly pertinent in one that is in transition from an administered to a market‐oriented system. One factor that may determine success in the underdeveloped Chinese labour market is thus guanxi, the Chinese variant of social capital. With individual‐level measures of social capital, we test for the role of guanxi using a dataset designed for this purpose, covering 7,500 urban workers and conducted in early 2000. The evidence is consistent with the basic hypothesis. Both measures of social capital – size of social network and Communist Party membership – have significant and substantial coefficients in the income functions. Social capital can have influence either in an administered system or in one subject to market forces. It appears to do so in both parts of the labour market.