AEA PAPERS AND PROCEEDINGS MAY 999 employment in the collective enterprises and cidence of poverty. This process may well the insignificant elasticity in the state enter- continue until the transition is completed prises(see Khan, 1998) sometime in the future The reason why the collec ve and state In summary, the increase in urban inequal enterprises performed so poorly in terms of ity between 1988 and 1995 was due to job creation is that, with the increase in mar- greater inequality in the distribution of most ket orientation at home and greater integra- of the major components of income, rather tion into the world economy, they were than to a change in the composition of in- subjected to increased competition from come. Urban poverty failed to decline be domestic and foreign private enterprises. cause the rise in personal income lagged Chinas state and collective enterprises re- far behind the rise in GDP, and the rise in sponded to increased competition by reduc- average income that took place was offset by ing the disguised unemployment they had an extraordinary increase in inequality in the nherited from the past as a consequence of distribution of income. The extreme employ- the policy of guaranteed employment for all. ment hostility of industrial growth made The observed low output elasticity of em- these difficulties even worse. Gov ployment in the period of reform and inte- policies related to the social safety net, ration economy conce eals coupons, subsidies, and housing aggravated two divergent tendencies: (i)a high output inequality and perpetuated poverty. Some elasticity of employment at constant inten- increase in urban inequality probably was sity of work per worker; and (ii)a rise in inevitable and even desirable in the context the intensity of work per worker due to a of market-oriented economic reforms, but eduction of disguised unemployment, Once regressive social policies made the burdens the transition is completed and the concealed of transition greater than they need have unemployment in state and collective enter- been prises is eliminated, China' s industries will be much more efficient. and thereafter the REFERENCES observed output elasticity of employment may rise. But meanwhile the process of tran- Khan, A.R. " Poverty in China in the Period of sition has been characterized by very slow Globalization: New Evidence on Trend and growth of employment, and this has pre Pattern. Issues in Development Discussion vented the benefits of growth from being aper No. 22, International Labour Office widely spread among the urban population Geneva Switzerland, 1998 The consequence has been a rise in the in- Khan, Azizur Rahman; Griffin, Keith; Riskin, Carl and Zhao, Renwei. Household Income and Its Distribution in China. ' China quar terly, December 1992, (132), pp. 1029-61 6 Some of the Khan, Azizur and Riskin, Carl. " 'Income and In- equality in China: Composition, Distribu- orkers. whose e nsen as a res tion and growth of household income grant workers are not considered part of 1988 to 1995. China Quarterly, June 1998,(154),pp.221-53