Piecemeal Labour Market Liberalisation and Entrepreneurship in China's Transition

ABSTRACT Existing studies argue that China's dual‐track approach to economic reforms offers lessons for other transition economies. Ignoring the piecemeal nature of the track‐merging process, the literature has not supported this theory empirically. We identify the impacts of China's piecemeal unification of the dual‐track job‐assignment system on entrepreneurship, arriving at three conclusions. First, the partial unification of the system has played as important a role as full unification in relaxing constraints on college graduates' entrepreneurship incentives. Second, the system encourages college graduates to take planned‐track jobs first and then traps them on the planned track through career‐path dependence, explaining the mechanism. Third, with respect to the three types of planned‐track jobs, the piecemeal merging completely eliminates bias towards college graduates associated with jobs in state‐owned enterprises and weakens their career‐path dependence while only partially correcting for bias associated with government and institute jobs without affecting career‐path dependence in those cases.