This paper demonstrates that China uses state employment to promote social stability via job provision. I first document that state employment increases after natural disasters and poor trade shocks, and is concentrated on demographics most prone to unrest participation. Then, I use variation from an ethnic conflict in China’s Xinjiang province to establish that, in times and places with a higher threat of ethnic unrest spillover, state-owned firms hire more male minorities – precisely the demographic most likely to participate in ethnic unrest. Concurrently, male minority wages rise and private firms hire fewer people from this group. These patterns are consistent with a model of government-subsidized, stability-oriented state employment. A model-derived quantification exercise suggests that state firms implicitly receive a 26% subsidy on male minority wages.
Jaya Wen is assistant professor in the Business, Government and the International Economy Unit at Harvard Business School. She received her Ph.D. in economics from Yale University in 2019 and spent the subsequent academic year as a Postdoctoral Fellow at the Kellogg School of Management at Northwestern University. Her central intellectual goal is to document the political determinants of economic development and, in turn, inform policy decisions regarding the livelihood of the world’s most vulnerable populations. Jaya is an applied microeconomist working on questions at the intersection of development economics and political economy. Her work formalizes relationships between economic and political phenomena and tests theoretical predictions using diversely-sourced microdata. She leverages a rich set of methodologies, including natural experiments and randomized controlled trials.