Liberalization and rent-seeking in China’s labor market

Communist Party membership can generate labor market benefits in at least two ways. First, the Party may hand out direct benefits to favored groups in the form of higher earnings. Alternatively, the Party may function in much the same way as education in Western countries, screening workers for talent and motivation. We find very little evidence of earnings premiums to Party membership or to cadre status prior to Chinese market liberalization. With liberalization comes less emphasis on being “red” and a greater capacity to earn wages that reflect ability, both observed through schooling and identified by the Party. We find that Party premiums are inversely related to education. Modest premiums to cadre status appear in 1995.