on differ from capital and land, comprising a human component. Unlike other factors, they have a desire for fairness and equality. In this sense, fully flexible and competitive labor markets may not be the best alternative in the long-run when transforming a command economy, requiring the government to set up institutions pressing for a non-market outcome when required (Knight and Song, 2005) . An unregulated market cannot be relied on to solve all problems in the long-run; much in contrast to this a regulated market within a functional institutional framework is a prerequisite for a positive long-term development. In its evolution the Chinese labor market faces many challenges and one cannot expect it to change as fast as other parts of the economy. An institutional arrangement considerably distinct to the pre-reform arrangement needs to be carefully developed. Following Deng Xiaoping s famous feel the stones while crossing the stream phrase, China has chosen a unique and pragmatic approach in transforming the country: adjusting the institutional design while testing different arrangements and correcting them when necessary. Similar developments are now observable in the labor market as it is in the process of shaping and reinventing itself. At its current transformational path it is not yet clear which destination it is heading for. Moreover, China s current labor market is an evolving and tremendously crucial component of the Chinese transformation process.determined forces have significantly contributed in transforming the Chinese command economy to a more market based one, but with rising inequality and an unequal employer-employee power balance, more harm could be done than gained if non-market institutions are not able to develop themselves. Chinese workers have been granted the right to choose their own employment while at the same time paternalistic institutions were withdrawn and bargaining power is significantly in favor of employers (Saha, 2006). In a way, the Chinese government is in a dilemma. On the one hand it needs to find ways to quickly create jobs for the largest labor force in the world, increasingly relying on the private sector and market forces rather than historically proven failure prone government control. On the other hand, despite improved living conditions for most of the population it is facing growing income disparities and discontent among its labor force, potentially creating social and political problems threatening the necessary reform process. While conditions have been unevenly favorable for enterprises, the continuous and apparent hardship may require the government to seriously take distinctive measures attempting to rebalance the power disparities in Chinese industrial relations. s economy still needs to develop the necessary institutions for i...
