THE ROLE OF SOCIAL CAPITAL IN THE LABOUR MARKET INCHINA

Social capital is thought to play an economic role in the labour market. It may beparticularly pertinent in one that is in transition from an administered to a market-orientedsystem. One factor that may determine success in the underdeveloped Chinese labourmarket is thus guanxi, the Chinese variant of social capital. With individual-level measuresof social capital, we test for the role of guanxi using a data set designed for this purpose,covering 7,500 urban workers and conducted in early 2000. The basic hypothesis issupported. Both measures of social capital – size of social network and Communist Partymembership – have significant and substantial effects in the income functions. Indeed, socialcapital may be just as important as human capital: remarkably, one additional reportedcontact contributes more than one additional year of education. Social capital can haveinfluence either in an administered system or in one subject to market forces. We find that itdoes so in both parts of the labour market, but some of the evidence suggests that it is moreimportant in the latter....