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One of the key institutional outcomes of China’s economic reforms has been to create a new role for employers that is separate from the state, and allows enterprises to concentrate on their business. To protect workers, the government has set up public institutions for many social and administrative functions that until recently pertained to work units (danwei), or did not exist. This paper focuses on three such functions for which the 1994 Labour Law makes the government responsible: employment services, labour inspection and social insurance.
OECD experience of specific policy solutions has potential interest for China on several points: for example in the administration of social insurance funds or in ensuring adequate co ordination between “passive” income support and “active” job-search assistance for the unemployed. A more fundamental problem, however, is that all formal labour market institutions in China – as in other developing countries – have limited application outside the most developed part of the economy, which consists mainly of urban formal enterprises. Implementing labour law and social insurance is generally difficult in the less productive rural and informal segments of the labour market. But real incomes are rising in most parts of the economy, and the present scale of rural-urban migration and economic interdependence makes it urgent to reduce institutional inequity as far as possible.