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STEG Working Paper

State Employment as a Strategy of Autocratic Control in China

Jaya Y. Wen

This paper presents new evidence that autocrats use state-owned enterprises to pacify social unrest via employment provision, which may reinforce state firms’ low productivity and persistence across settings. I use variation in a regional conflict between Uyghur separatists and the Chinese government to establish that, in years and counties with a higher threat of unrest, state-owned firms hire more male minorities, the demographic most likely to participate in ethnic conflict. Concurrently, wages rise and private employment falls among this group. These patterns are consistent with a theoretical framework of government-subsidized, pacification-motivated state employment, and a quantification exercise indicates that state firms implicitly receive a 26% subsidy on male minority wages. Furthermore, I find that state employment increases after poor trade shocks and natural disasters, consistent with a general role in preventing unrest.