n again underlines the weak position of unskilled workers and that they are bearing the brunt of problems of the marketization efforts. Speculatively, they may be punished as management attempts to off-set wage increases in the skilled sector. Whereas undersupplied skilled labor can bargain for improved labor conditions, the majority of the labor force faces a unitarily determined wage rate set by management. The problem with all this flexibility is that the share of unskilled workers is far higher than the share of skilled workers, creating a challenging situation for the majority of the Chinese workforce. As a result this development may have contributed to high income disparities and it might be questionable if this is a desirable situation for the social and political system of China.
3.1.2 Government Control
As illustrated in Figure 1 the importance of government owned enterprises have become less relevant to the majority of the population, as enterprises have drastically been downsized and emphasis has been put on the private sector. For the remaining employees certain components of the danwei system are still in place in the state sector although the government has gradually withdrawn from its extreme intervention and let market forces take over (Knight and Song, 2005). During the mid-1980s and especially during the 1990s, when the most significant labor market liberalization efforts were undertaken, SOEs were granted more freedom in setting wages (Yueh, 2004). Wage-grid style government control is no longer known in China as the labor market has shifted from a planned economy to a market based economy. Wage structures in SOEs have been reformed during the 1990s, subsequently implementing performance based schemes and a reduction of regulations (Saha, 2006). Still so, the government continues to influence market conditions as government and party officials establish wage guidelines mostly for, but not limited to, SOEs. Typically, this influence may pertain to regulating total wages and increases of total wages, leaving internal wage distribution to the management (He, 2003). How wide spread government wage guidelines are and in to what degree they are actually enforced remains unclear. However, it can be expected that the overall influence for the majority of the labor force will remain negligible as these guidelines will most likely only be applicable for executive or mid-level management positions (Rawski, 2003). Of the state-owned sector the government has introduced minimum wages for China in 1994. The minimum levels vary by province as well as within the provinces themselves due to variations in cost of living. Although the minimum wage rate has been increased since its introduction, increases have not been able to keep up with inflation. Further, the Ministry of Labor and Social Security (MOLSS) has advised enterprises, especially profit making o...
