A dynamic analysis of overstaff in China's state-owned enterprises

Overstaff in state-owned enterprises (SOEs) is a key and difficult issue in the Chinese economic reform. This paper models the transition process in t he reform that SOE overstaff is gradually absorbed by private enterprises a nd the economy grows through converting redundant SOE workers into active l abor force. It characterizes the steady equilibrium, where all overstaff ha s been completely absorbed, and the dynamic path from current state to the steady equilibrium. The optimal transition strategy maximizing household ut ility is also discussed. (C) 2001 Elsevier Science B.V. All rights reserved .