Prof. Jaya Wen, Harvard Business School
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.