Labor Market Liberalization and Skill Acquisition : Evidence from State-Owned Enterprises Reform in China

Labor market liberalization, such as state-owned enterprises reform that allows firms to fire redundant workers, has unclear effects on labor market conditions and skill acquisition empirically. This paper studies the effects of labor market liberalization on education-specific labor market demand and high school completion in a transitioning economy. Specifically, I exploit China’s 1998-2002 state-owned enterprises (SOE) reform, which aimed at labor market liberalization and generated sudden shocks to labor market demand. Using difference-in-differences method, I show that labor market demand for those who have not graduated from high school decreases temporarily following the reform in cities where the reform is more intensive, and that the effects dissipate as the reform ends. The high school completion rate also increases by 5%, and these dynamics are consistent with changes in the labor market demand